September 30, 2000
TAXABLE
BOND
PORTFOLIOS
ANNUAL REPORT
TO SHAREHOLDERS
Not FDIC Insured
May Lose Value
No Bank Guarantee
[GRAPHIC OMITTED]
BLACKROCK
FUNDS (LOGO)
PURE INVESTMENT STYLE(REGISTRATION MARK)
<PAGE>
BLACKROCK FUNDS
TAXABLE BOND PORTFOLIOS
* Low Duration Bond * GNMA
* Intermediate Government Bond * Managed Income
* Intermediate Bond * International Bond
* Core Bond * High Yield Bond
* Government Income
TABLE OF CONTENTS
SHAREHOLDER LETTER......................................................... 1
PORTFOLIO SUMMARIES
Low Duration Bond.................................................... 2
Intermediate Government Bond......................................... 3
Intermediate Bond.................................................... 4
Core Bond............................................................ 5
Government Income.................................................... 6
GNMA................................................................. 7
Managed Income....................................................... 8
International Bond................................................... 9
High Yield Bond...................................................... 10
Note on Performance Information...................................... 11
STATEMENT OF NET ASSETS/SCHEDULE OF INVESTMENTS......................... 12-48
Intermediate Government Bond Statement of Assets & Liabilities....... 20
Intermediate Bond Statement of Assets & Liabilities.................. 26
Core Bond Statement of Assets & Liabilities.......................... 32
Managed Income Statement of Assets & Liabilities..................... 42
International Bond Statement of Assets & Liabilities................. 45
High Yield Bond Statement of Assets & Liabilities.................... 49
PORTFOLIO FINANCIAL STATEMENTS
Statements of Operations.......................................... 50-51
Statements of Cash Flows.......................................... 52-55
Statements of Changes in Net Assets............................... 56-59
Financial Highlights.............................................. 60-67
NOTES TO FINANCIAL STATEMENTS........................................... 68-81
REPORT OF INDEPENDENT ACCOUNTANTS.......................................... 82
PRIVACY PRINCIPLES OF BLACKROCK FUNDS
BLACKROCK FUNDS IS COMMITTED TO MAINTAINING THE PRIVACY OF ITS SHAREHOLDERS AND
TO SAFEGUARDING THEIR NONPUBLIC PERSONAL INFORMATION. THE FOLLOWING INFORMATION
IS PROVIDED TO HELP YOU UNDERSTAND WHAT PERSONAL INFORMATION BLACKROCK FUNDS
COLLECTS, HOW WE PROTECT THAT INFORMATION, AND WHY IN CERTAIN CASES WE MAY
SHARE SUCH INFORMATION WITH SELECT OTHER PARTIES.
BLACKROCK FUNDS DOES NOT RECEIVE ANY NONPUBLIC PERSONAL INFORMATION RELATING TO
ITS SHAREHOLDERS WHO PURCHASE SHARES THROUGH THEIR BROKER-DEALERS. IN THE CASE
OF SHAREHOLDERS WHO ARE RECORD OWNERS OF BLACKROCK FUNDS, BLACKROCK FUNDS
RECEIVES NONPUBLIC PERSONAL INFORMATION ON ACCOUNT APPLICATIONS OR OTHER FORMS.
WITH RESPECT TO THESE SHAREHOLDERS, BLACKROCK FUNDS ALSO HAS ACCESS TO SPECIFIC
INFORMATION REGARDING THEIR TRANSACTIONS IN BLACKROCK FUNDS.
BLACKROCK FUNDS DOES NOT DISCLOSE ANY NONPUBLIC PERSONAL INFORMATION ABOUT ITS
SHAREHOLDERS OR FORMER SHAREHOLDERS TO ANYONE, EXCEPT AS PERMITTED BY LAW OR AS
IS NECESSARY IN ORDER TO SERVICE OUR SHAREHOLDERS' ACCOUNTS (FOR EXAMPLE, TO A
TRANSFER AGENT).
BLACKROCK FUNDS RESTRICTS ACCESS TO NONPUBLIC PERSONAL INFORMATION ABOUT ITS
SHAREHOLDERS TO BLACKROCK EMPLOYEES WITH A LEGITIMATE BUSINESS NEED FOR THE
INFORMATION. BLACKROCK FUNDS MAINTAINS PHYSICAL, ELECTRONIC AND PROCEDURAL
SAFEGUARDS DESIGNED TO PROTECT THE NONPUBLIC PERSONAL INFORMATION OF OUR
SHAREHOLDERS.
<PAGE>
BLACKROCK FUNDS
September 30, 2000
Dear Shareholder:
We are pleased to present the Annual Report for the BlackRock Funds for
the 12 months ending September 30, 2000.
Since our Semi-Annual report of March 31, 2000, the stock market as
measured by the S&P 500 returned -4.14%, the NASDAQ returned -18.81% and the
Lehman Aggregate Index returned 4.81%. So in this first year of the millennium,
at a time in history when there is more media attention about the stock market
than ever before, stocks actually under-performed bonds.
It has been a year of extremes. When we reported to you one year ago, it
was the dawn of a new millennium and there was plenty of concern about Y2K and
the devastation that it could wreak on capital markets and world economies. Yet
while the media bombarded us with concerns about Y2K, the investment world was
investing in technology and the Internet with an enthusiasm that could only be
described as fervent. There was much talk of a "new economy" and Internet shares
shot skyward. Share prices climbed so quickly that analysts continue to search
for new and improved ways to measure value.
Now, a year later, we can all be relieved that Y2K has come and gone with
small incident. And, while it is clear that the Internet will become an
important part of our economy, the boundless enthusiasm for Internet stocks has
moderated to the extent that the Goldman Sachs Technology Industry Internet
Index fell nearly 35% in the last six months. In fact, we were reminded of the
long-term lessons of investing.
The truth of the matter is that successful investing is a long-term
process and the best strategy for most investors is to work with your financial
advisor to set your goals, plan and implement an asset allocation that is
customized to your goals AND your personal needs for certain levels of risk --
and then to stay the course despite short term volatility in the markets.
We continue to believe that mutual funds, which provide diversification,
professional management and ease and flexibility of use, are an appropriate
investment vehicle for individual investors.
We are proud to be able to offer our shareholders a full range of funds to
meet virtually any investment need. In the past year, we added three specialized
portfolios: Global Science & Technology, European Equity and Asia Pacific
Equity. You can now choose from 39 different BlackRock Funds.
Thank you for your confidence in BlackRock Funds. We appreciate the
opportunity to help you achieve your long-term investment goals.
Sincerely,
/S/KAREN H. SABATH
Karen H. Sabath
MANAGING DIRECTOR
BLACKROCK ADVISORS, INC.
1
<PAGE>
BLACKROCK FUNDS
LOW DURATION BOND PORTFOLIO
TOTAL NET ASSETS (9/30/00):
$244.9 MILLION
PERFORMANCE BENCHMARK:
MERRILL LYNCH 1-3 YEAR TREASURY INDEX
INVESTMENT APPROACH:
SEEKS A RATE OF RETURN THAT EXCEEDS THE TOTAL RETURN OF ITS BENCHMARK BY
INVESTING PRIMARILY IN INVESTMENT GRADE SECURITIES WITH MATURITIES FROM 3 TO 5
YEARS. THE PORTFOLIO MAY ALSO INVEST UP TO 20% OF ITS ASSETS IN DEBT SECURITIES
OF FOREIGN ISSUERS AND UP TO 20% IN BELOW INVESTMENT GRADE SECURITIES RATED B OR
HIGHER BY A MAJOR RATING AGENCY OR DEEMED BY THE MANAGER TO BE OF COMPARABLE
CREDIT QUALITY.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
oTREASURY YIELDS ON THE SHORT END OF THE YIELD CURVE INCREASED SHARPLY OVER
THE PERIOD. THE ONE-YEAR TREASURY YIELD ROSE FROM 5.18% ON SEPTEMBER 30, 1999 TO
6.09% ON SEPTEMBER 30, 2000 IN RESPONSE TO THE INCREASES TO THE DISCOUNT RATE BY
THE FEDERAL RESERVE AND UNCERTAINTY OVER FUTURE INTEREST RATE HIKES.
oIN THE BEGINNING OF THE PERIOD, THE MANAGER BOUGHT ADDITIONAL U.S.
TREASURY AND AGENCY SECURITIES TO TAKE ADVANTAGE OF THE ATTRACTIVE YIELD LEVELS
IN THE MARKET. IN THE SECOND QUARTER, HOWEVER, THE MANAGER BEGAN REDUCING
TREASURY AND AGENCY EXPOSURE. THIS HELPED THE PORTFOLIO'S PERFORMANCE AS THE
YIELD CURVE BEGAN TO NORMALIZE TOWARD THE LATTER PART OF THE YEAR. THE
PORTFOLIO'S OVERWEIGHT IN MORTGAGES DURING THE FISCAL YEAR ALSO CONTRIBUTED
POSITIVELY TO PORTFOLIO PERFORMANCE.
oTHE PORTFOLIO CONTINUES TO BE OVERWEIGHT MORTGAGES VERSUS THE INDEX AS WE
BELIEVE THAT THEY HAVE BEEN UNDERVALUED. THE PORTFOLIO ALSO HAS BEGUN INCREASING
ITS POSITION IN TREASURIES WITH LONGER MATURITIES IN ANTICIPATION OF A "SOFT
LANDING" FOR THE ECONOMY AND A CONTROLLED INFLATION LEVEL.
Although the portfolio holdings and sectors listed above were current as of the
end of the annual period ended September 30, 2000, the Portfolio is actively
managed and the composition will vary.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE LOW DURATION BOND
PORTFOLIO AND THE MERRILL 1-3 YEAR TREASURY INDEX FROM INCEPTION AND AT EACH
FISCAL YEAR END.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Institutional Service Investor A Investor B Investor C BlackRock Merrill 1-3 Year
Class Class Class Class Class Class Treasury Index
<S> <C> <C> <C> <C> <C> <C> <C>
7/17/92 $10,000 $10,000 $ 9,700 $10,000 $10,000 $10,000 $10,000
Sep-92 $10,079 $10,079 $ 9,777 $10,079 $10,079 $10,079 $10,288
Dec-92 $10,137 $10,137 $ 9,833 $10,137 $10,137 $10,137 $10,595
Mar-93 $10,295 $10,295 $ 9,986 $10,295 $10,295 $10,295 $10,614
Jun-93 $10,468 $10,468 $10,154 $10,468 $10,468 $10,468 $10,848
Sep-93 $10,620 $10,620 $10,302 $10,620 $10,620 $10,620 $10,965
Dec-93 $10,711 $10,711 $10,390 $10,711 $10,711 $10,711 $11,122
Mar-94 $10,691 $10,691 $10,370 $10,691 $10,691 $10,691 $11,188
Jun-94 $10,713 $10,713 $10,391 $10,713 $10,713 $10,713 $11,132
Sep-94 $10,837 $10,837 $10,512 $10,837 $10,837 $10,837 $11,141
Dec-94 $10,860 $10,860 $10,534 $10,860 $10,860 $10,860 $11,251
Mar-95 $11,214 $11,214 $10,878 $11,214 $11,214 $11,214 $11,251
Jun-95 $11,521 $11,521 $11,175 $11,521 $11,521 $11,521 $11,629
Sep-95 $11,767 $11,767 $11,414 $11,767 $11,767 $11,767 $12,002
Dec-95 $12,001 $12,001 $11,641 $12,001 $12,001 $12,001 $12,182
Mar-96 $12,023 $12,009 $11,644 $12,004 $12,004 $12,023 $12,489
Jun-96 $12,149 $12,125 $11,752 $12,115 $12,115 $12,149 $12,531
Sep-96 $12,347 $12,313 $11,929 $12,298 $12,298 $12,347 $12,657
Dec-96 $12,610 $12,565 $12,168 $12,537 $12,537 $12,610 $12,866
Mar-97 $12,668 $12,614 $12,210 $12,556 $12,556 $12,668 $13,110
Jun-97 $12,938 $12,876 $12,459 $12,789 $12,789 $12,938 $13,197
Sep-97 $13,196 $13,122 $12,692 $13,003 $13,003 $13,199 $13,487
Dec-97 $13,370 $13,286 $12,845 $13,135 $13,135 $13,379 $13,752
Mar-98 $13,588 $13,492 $13,039 $13,309 $13,309 $13,602 $13,983
Jun-98 $13,808 $13,699 $13,235 $13,483 $13,483 $13,828 $14,197
Sep-98 $14,156 $14,035 $13,552 $13,781 $13,781 $14,182 $14,634
Dec-98 $14,256 $14,125 $13,634 $13,838 $13,838 $14,288 $14,745
Mar-99 $14,425 $14,280 $13,778 $13,958 $13,958 $14,461 $14,834
Jun-99 $14,521 $14,366 $13,854 $14,008 $14,008 $14,564 $14,918
Sep-99 $14,709 $14,541 $14,016 $14,146 $14,146 $14,758 $15,106
Dec-99 $14,835 $14,656 $14,120 $14,209 $14,209 $14,876 $15,197
Mar-00 $15,029 $14,836 $14,288 $14,351 $14,351 $15,077 $15,387
Jun-00 $15,273 $15,065 $14,502 $14,555 $14,539 $15,327 $15,651
Sep-00 $15,635 $15,410 $14,829 $14,855 $14,839 $15,696 $15,980
</TABLE>
FOR PERIOD ENDING SEPTEMBER 30, 2000
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
------ ------ ------ ----------------
BlackRock Class 6.35% 5.94% 5.94% 5.65%
Institutional Class 6.29% 5.82% 5.84% 5.60%
Service Class 5.98% 5.50% 5.54% 5.41%
Investor A Class (Load Adjusted) 2.66% 4.26% 4.73% 4.92%
Investor A Class (NAV) 5.80% 5.32% 5.37% 5.31%
Investor B Class (Load Adjusted) 0.51% 3.46% 4.44% 4.94%
Investor B Class (NAV) 5.01% 4.54% 4.77% 4.94%
Investor C Class (Load Adjusted) 4.01% 4.54% 4.77% 4.94%
Investor C Class (NAV) 5.01% 4.54% 4.77% 4.94%
THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF
THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN
THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO'S SHARE
CLASSES WERE AS FOLLOWS: INSTITUTIONAL SHARES, 7/17/92; SERVICE, 1/12/96;
INVESTOR A SHARES, 1/12/96; INVESTOR B SHARES, 11/18/96; INVESTOR C SHARES,
2/24/97; AND BLACKROCK SHARES, 6/3/97. SEE "NOTE ON PERFORMANCE INFORMATION" ON
PAGE 11 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
2
<PAGE>
BLACKROCK FUNDS
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
TOTAL NET ASSETS (9/30/00):
$362.1 MILLION
PERFORMANCE BENCHMARK:
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT INDEX
INVESTMENT APPROACH:
SEEKS CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL BY
INVESTING IN SECURITIES ISSUED OR GUARANTEED BY THE U.S. GOVERNMENT OR ITS
AGENCIES OR RATED AAA BY A MAJOR RATING AGENCY. THE PORTFOLIO EMPHASIZES
SECURITIES WITH MATURITIES FROM 5 TO 10 YEARS.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
oTREASURY YIELDS ON THE SHORT END OF THE YIELD CURVE INCREASED SHARPLY OVER
THE PERIOD. THE ONE-YEAR TREASURY YIELD ROSE FROM 5.18% ON SEPTEMBER 30, 1999 TO
6.09% ON SEPTEMBER 30, 2000 IN RESPONSE TO THE INCREASES TO THE DISCOUNT RATE BY
THE FEDERAL RESERVE AND UNCERTAINTY OVER FUTURE INTEREST RATE HIKES. FOR THE
PERIOD, YIELDS AT THE LONG END OF THE YIELD CURVE FELL. THE YIELD OF THE 10-YEAR
TREASURY FELL 0.06% FROM 5.88% ON SEPTEMBER 30, 1999 TO 5.82% ON SEPTEMBER 30,
2000 IN REACTION TO THE TREASURY'S ANNOUNCEMENT TO REPURCHASE UP TO $30 BILLION
IN SECURITIES.
oTHE MANAGER INCREASED THE PORTFOLIO'S MORTGAGE PASS-THROUGH EXPOSURE
DURING THE FIRST HALF OF THE PERIOD IN ORDER TO CAPITALIZE ON THE RELATIVE VALUE
IN THE MORTGAGE SECTOR. DURING THE SECOND HALF OF THE PERIOD, THE MANAGER
REDUCED THE PORTFOLIO'S PASS-THROUGH EXPOSURE IN FAVOR OF TREASURIES WITH LONGER
MATURITIES, IN ANTICIPATION OF A "SOFT LANDING" FOR THE ECONOMY AND A CONTROLLED
INFLATION LEVEL. THIS BOOSTED PORTFOLIO PERFORMANCE AS TREASURIES RALLIED DURING
THE THIRD QUARTER DUE TO THE BELIEF THAT THE FED HAD SUCCESSFULLY ENGINEERED A
SOFT LANDING AND WAS FINISHED WITH ITS INTEREST RATE HIKE CAMPAIGN.
oDESPITE ITS INCREASED TREASURY ALLOCATION LATER IN THE PERIOD, THE
PORTFOLIO REMAINED OVERWEIGHT MORTGAGES VERSUS THE INDEX. THIS HELPED PORTFOLIO
PERFORMANCE AS SPREAD SECTORS RALLIED IN THE SECOND QUARTER.
Although the portfolio holdings and sectors listed above were current as of the
end of the annual period ended September 30, 2000, the Portfolio is actively
managed and the composition will vary.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INTERMEDIATE
GOVERNMENT BOND PORTFOLIO AND THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT INDEX
FROM INCEPTION AND AT EACH FISCAL YEAR END.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Institutional Service Investor A Investor B Investor C Lehman Intermediate
Class Class Class Class Class Government Index
<S> <C> <C> <C> <C> <C> <C>
4/20/92 $10,000 $10,000 $ 9,600 $10,000 $10,000 $10,000
Jun-92 $10,276 $10,276 $ 9,865 $10,276 $10,276 $10,000
Sep-92 $10,714 $10,714 $10,286 $10,714 $10,714 $10,746
Dec-92 $10,626 $10,626 $10,201 $10,626 $10,626 $10,746
Mar-93 $10,986 $10,986 $10,547 $10,986 $10,986 $10,746
Jun-93 $11,218 $11,218 $10,769 $11,218 $11,218 $10,746
Sep-93 $11,452 $11,448 $10,990 $11,448 $11,448 $11,567
Dec-93 $11,454 $11,447 $10,984 $11,442 $11,442 $11,567
Mar-94 $11,181 $11,166 $10,715 $11,161 $11,161 $11,567
Jun-94 $11,043 $11,022 $10,576 $11,016 $11,016 $11,567
Sep-94 $11,097 $11,070 $10,621 $11,063 $11,063 $11,393
Dec-94 $11,070 $11,036 $10,589 $11,030 $11,030 $11,383
Mar-95 $11,567 $11,524 $11,057 $11,517 $11,517 $11,857
Jun-95 $12,056 $12,002 $11,515 $11,995 $11,995 $12,411
Sep-95 $12,239 $12,173 $11,680 $12,166 $12,166 $12,605
Dec-95 $12,597 $12,520 $12,022 $12,523 $12,523 $13,026
Mar-96 $12,531 $12,445 $11,933 $12,430 $12,430 $12,919
Jun-96 $12,607 $12,511 $11,991 $12,491 $12,491 $13,006
Sep-96 $12,831 $12,723 $12,190 $12,698 $12,698 $13,229
Dec-96 $13,153 $13,033 $12,482 $12,981 $12,981 $13,535
Mar-97 $13,150 $13,021 $12,464 $12,938 $12,938 $13,531
Jun-97 $13,517 $13,375 $12,797 $13,260 $13,260 $13,910
Sep-97 $13,867 $13,711 $13,112 $13,561 $13,561 $14,266
Dec-97 $14,170 $14,000 $13,383 $13,816 $13,816 $14,581
Mar-98 $14,381 $14,197 $13,567 $13,979 $13,979 $14,800
Jun-98 $14,657 $14,460 $13,811 $14,204 $14,204 $15,075
Sep-98 $15,230 $15,014 $14,334 $14,714 $14,714 $15,779
Dec-98 $15,250 $15,021 $14,336 $14,688 $14,688 $15,819
Mar-99 $15,276 $15,035 $14,343 $14,667 $14,667 $15,776
Jun-99 $15,195 $14,945 $14,251 $14,546 $14,546 $15,746
Sep-99 $15,344 $15,081 $14,375 $14,644 $14,644 $15,907
Dec-99 $15,376 $15,100 $14,402 $14,630 $14,744 $16,069
Mar-00 $15,626 $15,334 $14,604 $14,823 $14,939 $16,331
Jun-00 $15,897 $15,587 $14,854 $15,033 $15,151 $16,628
Sep-00 $16,350 $16,019 $15,259 $15,415 $15,536 $17,074
</TABLE>
FOR PERIOD ENDING SEPTEMBER 30, 2000
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
------ ------ ------ ----------------
Institutional Class 6.54% 5.64% 5.96% 5.99%
Service Class 6.23% 5.32% 5.64% 5.74%
Investor A Class (Load Adjusted) 1.93% 3.76% 4.63% 5.13%
Investor A Class (NAV) 6.15% 5.18% 5.49% 5.64%
Investor B Class (Load Adjusted) 0.76% 3.28% 4.52% 5.26%
Investor B Class (NAV) 5.26% 4.36% 4.85% 5.26%
Investor C Class (Load Adjusted) 4.26% 4.36% 4.85% 5.26%
Investor C Class (NAV) 5.26% 4.36% 4.85% 5.26%
THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF
THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN
THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO'S SHARE
CLASSES WERE AS FOLLOWS: INSTITUTIONAL SHARES, 4/20/92; INVESTOR A SHARES,
5/11/92; SERVICE SHARES, 7/29/93; INVESTOR C SHARES, 10/8/96; AND INVESTOR B
SHARES, 10/11/96. SEE "NOTE ON PERFORMANCE INFORMATION" ON PAGE 11 FOR FURTHER
INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
3
<PAGE>
BLACKROCK FUNDS
INTERMEDIATE BOND PORTFOLIO
TOTAL NET ASSETS (9/30/00):
$699.1 MILLION
PERFORMANCE BENCHMARK:
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE INDEX
INVESTMENT APPROACH:
SEEKS CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL BY
INVESTING IN SECURITIES RATED BBB OR HIGHER BY A MAJOR RATING AGENCY OR DEEMED
BY THE MANAGER TO BE OF COMPARABLE CREDIT QUALITY. THE PORTFOLIO EMPHASIZES
SECURITIES WITH MATURITIES FROM 5 TO 10 YEARS.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
oFOR THE PERIOD, TREASURY YIELDS ON THE SHORT END OF THE YIELD CURVE
INCREASED SHARPLY IN RESPONSE TO THE INCREASES TO THE DISCOUNT RATE BY THE
FEDERAL RESERVE AND UNCERTAINTY OVER FUTURE INTEREST RATE HIKES. RECENTLY,
HOWEVER, WE HAVE BEGUN TO SEE A NORMALIZING OF THE YIELD CURVE DUE TO SLOWER
U.S. GROWTH. THIS SHOULD NARROW THE YIELD GAP BETWEEN CORPORATES AND TREASURIES.
FOR THE PERIOD, THE YIELD OF THE 5-YEAR TREASURY ROSE 0.12% FROM 5.76% ON
SEPTEMBER 30, 1999 TO 5.88% ON SEPTEMBER 30, 2000.
oFOR THE PERIOD, THE PORTFOLIO OUTPERFORMED THE LEHMAN INTERMEDIATE
GOVERNMENT/CORPORATE INDEX BECAUSE OF AN OVERWEIGHT IN MORTGAGES. WHILE
MORTGAGES UNDERPERFORMED TREASURIES AT THE BEGINNING OF THE PERIOD DUE TO LARGE
GOVERNMENT BUYBACKS AND INTEREST RATE HIKES, MORTGAGES BEGAN TO PICK UP AS
INVESTORS' FEARS MODERATED IN RESPONSE TO A SLOWING ECONOMY AND A LESS
AGGRESSIVE FEDERAL RESERVE.
oA LARGE PORTION OF THE PORTFOLIO REMAINS INVESTED IN CORPORATE SECURITIES.
THE ECONOMIC FUNDAMENTALS REMAIN POSITIVE FOR CORPORATE BONDS, BUT THE
INCREASING LEVERAGE UTILIZED BY CORPORATIONS HAS SPARKED SOME CREDIT QUALITY
CONCERNS WITHIN THE SECTOR. THE MANAGER REMAINS FOCUSED ON HIGH CREDIT QUALITY
ISSUES WITH AMPLE LIQUIDITY.
Although the portfolio holdings and sectors listed above were current as of the
end of the annual period ended September 30, 2000, the Portfolio is actively
managed and the composition will vary.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INTERMEDIATE BOND
PORTFOLIO AND THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE INDEX FROM
INCEPTION AND AT EACH FISCAL YEAR END.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Institutional Service Investor A Investor B Investor C BlackRock Lehman Brothers Intermediate
Class Class Class Class Class Class Government/Corporate Index
<S> <C> <C> <C> <C> <C> <C> <C>
9/17/93 $10,000 $10,000 $ 9,600 $10,000 $10,000 $10,000 $10,000
Dec-93 $ 9,954 $ 9,945 $ 9,610 $ 9,945 $ 9,945 $ 9,954 $10,037
Mar-94 $ 9,675 $ 9,660 $ 9,547 $ 9,660 $ 9,660 $ 9,675 $ 9,833
Jun-94 $ 9,592 $ 9,572 $ 9,274 $ 9,572 $ 9,572 $ 9,592 $ 9,774
Sep-94 $ 9,655 $ 9,628 $ 9,188 $ 9,626 $ 9,626 $ 9,655 $ 9,854
Dec-94 $ 9,644 $ 9,611 $ 9,241 $ 9,610 $ 9,610 $ 9,644 $ 9,843
Mar-95 $10,044 $10,003 $ 9,225 $10,002 $10,002 $10,044 $10,274
Jun-95 $10,498 $10,447 $ 9,601 $10,441 $10,441 $10,498 $10,788
Sep-95 $10,696 $10,636 $10,023 $10,620 $10,620 $10,696 $10,965
Dec-95 $11,051 $10,983 $10,194 $10,965 $10,965 $11,051 $11,349
Mar-96 $10,966 $10,890 $10,526 $10,878 $10,878 $10,966 $11,255
Jun-96 $11,046 $10,962 $10,442 $10,945 $10,945 $11,046 $11,325
Sep-96 $11,241 $11,147 $10,506 $11,125 $11,125 $11,241 $11,526
Dec-96 $11,527 $11,422 $10,679 $11,394 $11,394 $11,527 $11,809
Mar-97 $11,522 $11,408 $10,938 $11,375 $11,375 $11,522 $11,247
Jun-97 $11,863 $11,737 $10,920 $11,712 $11,712 $11,863 $11,579
Sep-97 $12,184 $12,047 $11,243 $12,016 $12,016 $12,184 $11,891
Dec-97 $12,403 $12,255 $11,534 $12,217 $12,217 $12,403 $12,145
Mar-98 $12,601 $12,440 $11,728 $12,391 $12,391 $12,601 $12,334
Jun-98 $12,825 $12,652 $11,923 $12,573 $12,573 $12,825 $12,566
Sep-98 $13,257 $13,070 $12,310 $12,958 $12,958 $13,262 $13,130
Dec-98 $13,282 $13,084 $12,319 $12,942 $12,942 $13,293 $13,168
Mar-99 $13,354 $13,146 $12,372 $12,973 $12,973 $13,370 $13,143
Jun-99 $13,298 $13,090 $12,305 $12,880 $12,880 $13,319 $13,092
Sep-99 $13,403 $13,214 $12,418 $12,991 $12,991 $13,428 $13,212
Dec-99 $13,414 $13,214 $12,413 $12,961 $12,961 $13,581 $13,219
Mar-00 $13,642 $13,429 $12,596 $13,142 $13,142 $13,818 $13,417
Jun-00 $13,889 $13,663 $12,810 $13,339 $13,339 $14,073 $13,644
Sep-00 $14,325 $14,082 $13,212 $13,717 $13,733 $14,521 $14,037
</TABLE>
FOR PERIOD ENDING SEPTEMBER 30, 2000
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
------ ------ ------ ----------------
BlackRock Class 7.05% 5.67% 6.09% 5.29%
Institutional Class 6.89% 5.55% 6.02% 5.24%
Service Class 6.57% 5.23% 5.70% 4.93%
Investor A Class (Load Adjusted) 2.13% 3.63% 4.69% 4.20%
Investor A Class (NAV) 6.39% 5.05% 5.55% 4.81%
Investor B Class (Load Adjusted) 1.10% 3.30% 4.82% 4.52%
Investor B Class (NAV) 5.60% 4.38% 5.15% 4.52%
Investor C Class (Load Adjusted) 4.71% 4.42% 5.17% 4.53%
Investor C Class (NAV) 5.71% 4.42% 5.17% 4.53%
THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF
THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN
THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO'S SHARE
CLASSES WERE AS FOLLOWS: INSTITUTIONAL SHARES, 9/17/93; SERVICE SHARES, 9/23/93;
INVESTOR A SHARES, 5/20/94; INVESTOR B SHARES, 2/5/98; BLACKROCK SHARES, 5/1/98
AND INVESTOR C SHARES, 10/16/98. SEE "NOTE ON PERFORMANCE INFORMATION" ON PAGE
11 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
4
<PAGE>
BLACKROCK FUNDS
CORE BOND PORTFOLIO
TOTAL NET ASSETS (9/30/00):
$1.5 BILLION
PERFORMANCE BENCHMARK:
LEHMAN BROTHERS AGGREGATE INDEX
INVESTMENT APPROACH:
SEEKS A TOTAL RATE OF RETURN THAT EXCEEDS THE TOTAL RETURN OF ITS BENCHMARK
BY INVESTING IN SECURITIES RATED BBB OR HIGHER BY A MAJOR RATING AGENCY OR
DEEMED BY THE MANAGER TO BE OF COMPARABLE CREDIT QUALITY. THE PORTFOLIO
EMPHASIZES SECURITIES WITH MATURITIES FROM 5 TO 15 YEARS.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
oOVER THE COURSE OF THE YEAR, TREASURY YIELDS ON THE SHORT END OF THE YIELD
CURVE INCREASED SHARPLY IN RESPONSE TO THE INCREASES TO THE DISCOUNT RATE BY THE
FEDERAL RESERVE AND UNCERTAINTY OVER FUTURE INTEREST RATE HIKES. DURING THE
PERIOD, THE YIELD ON THE 10-YEAR TREASURY DECREASED FROM 5.88% ON SEPTEMBER 30,
1999 TO 5.82% ON SEPTEMBER 30, 2000 IN REACTION TO THE TREASURY'S ANNOUNCEMENT
TO REPURCHASE UP TO $30 BILLION IN SECURITIES. RECENTLY, HOWEVER, WE HAVE BEGUN
TO SEE A NORMALIZING OF THE YIELD CURVE DUE TO SLOWER U.S. GROWTH. THIS SHOULD
NARROW THE YIELD GAP BETWEEN CORPORATES AND TREASURIES.
oTHE PORTFOLIO MAINTAINED AN OVERWEIGHT POSITION VERSUS THE INDEX
THROUGHOUT THE YEAR IN SPREAD SECTORS, PARTICULARLY THE MORTGAGE, ASSET-BACKED,
AND COMMERCIAL MORTGAGE-BACKED SECURITY (CMBS) SECTORS, WHICH OFFERED ATTRACTIVE
YIELDS AND TOTAL RETURN OPPORTUNITIES. CURRENTLY, THE PORTFOLIO IS UNDERWEIGHT
TREASURIES VERSUS THE INDEX IN FAVOR OF CORPORATES IN ANTICIPATION OF A
NORMALIZING OF THE YIELD CURVE AND A LOWER VALUATION OF TREASURIES. WE ALSO
DECREASED OUR MORTGAGE ALLOCATION, BUT MAINTAINED A RELATIVE OVERWEIGHT VERSUS
THE BENCHMARK.
oTHE BOND MARKET HAS TRADITIONALLY MOVED INVERSELY TO THE EQUITY MARKET.
SINCE EQUITIES ARE NOW SHOWING SIGNS OF A SLOWDOWN, WE ARE POSITIVE BUT NOT
BULLISH IN OUR OUTLOOK FOR THE BOND MARKET. TREASURY YIELDS ARE DOWN AND PRICES
ARE RICH, THEREFORE WE WILL CONTINUE TO HAVE A VERY UNDERWEIGHT POSITION IN
TREASURIES RELATIVE TO THE BENCHMARK.
Although the portfolio holdings and sectors listed above were current as of the
end of the annual period ended September 30, 2000, the Portfolio is actively
managed and the composition will vary.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE CORE BOND
PORTFOLIO AND THE LEHMAN BROTHERS AGGREGATE INDEX FROM INCEPTION AND AT EACH
FISCAL YEAR END.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Institutional Service Investor A Investor B Investor C BlackRock Lehman Aggregate
Class Class Class Class Class Class Index
<S> <C> <C> <C> <C> <C> <C> <C>
12/9/92 $10,000 $10,000 $ 9,600 $10,000 $10,000 $10,000 $10,000
Dec-92 $10,033 $10,033 $ 9,631 $10,033 $10,033 $10,033 $10,192
Mar-93 $10,416 $10,416 $ 9,999 $10,416 $10,416 $10,416 $10,487
Jun-93 $10,688 $10,688 $10,261 $10,688 $10,688 $10,688 $10,751
Sep-93 $11,021 $11,021 $10,581 $11,021 $11,021 $11,021 $11,010
Dec-93 $11,005 $11,005 $10,565 $11,005 $11,005 $11,005 $11,123
Mar-94 $10,715 $10,715 $10,286 $10,715 $10,715 $10,715 $10,574
Jun-94 $10,612 $10,612 $10,188 $10,612 $10,612 $10,612 $10,760
Sep-94 $10,695 $10,695 $10,267 $10,695 $10,695 $10,695 $10,605
Dec-94 $10,749 $10,749 $10,319 $10,749 $10,749 $10,749 $10,866
Mar-95 $11,269 $11,269 $10,818 $11,269 $11,269 $11,269 $11,349
Jun-95 $11,931 $11,931 $11,453 $11,931 $11,931 $11,931 $11,848
Sep-95 $12,166 $12,166 $11,680 $12,166 $12,166 $12,166 $12,265
Dec-95 $12,703 $12,703 $12,195 $12,703 $12,703 $12,703 $12,707
Mar-96 $12,405 $12,399 $11,900 $12,396 $12,396 $12,405 $12,329
Jun-96 $12,473 $12,466 $11,957 $12,432 $12,432 $12,473 $12,503
Sep-96 $12,722 $12,706 $12,182 $12,642 $12,642 $12,722 $12,980
Dec-96 $13,157 $13,134 $12,584 $13,035 $13,035 $13,157 $13,120
Mar-97 $13,121 $13,088 $12,534 $12,940 $12,940 $13,121 $13,007
Jun-97 $13,563 $13,523 $13,026 $13,604 $13,604 $13,564 $13,484
Sep-97 $14,002 $13,950 $13,432 $14,003 $14,003 $14,009 $13,932
Dec-97 $14,348 $14,283 $13,748 $14,305 $14,305 $14,360 $14,342
Mar-98 $14,580 $14,503 $13,954 $14,493 $14,493 $14,599 $14,562
Jun-98 $14,926 $14,836 $14,268 $14,791 $14,791 $14,950 $14,903
Sep-98 $15,483 $15,377 $14,783 $15,297 $15,297 $15,514 $15,534
Dec-98 $15,520 $15,403 $14,801 $15,287 $15,287 $15,557 $15,586
Mar-99 $15,498 $15,371 $14,762 $15,219 $15,219 $15,542 $15,507
Jun-99 $15,346 $15,220 $14,600 $15,024 $15,020 $15,353 $15,236
Sep-99 $15,457 $15,319 $14,687 $15,086 $15,081 $15,469 $15,339
Dec-99 $15,423 $15,275 $14,637 $15,008 $15,003 $15,443 $15,298
Mar-00 $15,808 $15,646 $14,986 $15,338 $15,333 $15,837 $15,636
Jun-00 $16,080 $15,902 $15,209 $15,537 $15,532 $16,115 $15,906
Sep-00 $16,582 $16,388 $15,684 $15,992 $15,988 $16,625 $16,385
</TABLE>
FOR PERIOD ENDING SEPTEMBER 30, 2000
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
------ ------ ------ ----------------
BlackRock Class 7.45% 5.96% 6.50% 6.76%
Institutional Class 7.29% 5.80% 6.39% 6.69%
Service Class 6.98% 5.49% 6.11% 6.51%
Investor A Class (Load Adjusted) 2.50% 3.88% 5.07% 5.84%
Investor A Class (NAV) 6.80% 5.30% 5.93% 6.40%
Investor B Class (Load Adjusted) 1.50% 3.43% 4.89% 5.93%
Investor B Class (NAV) 6.00% 4.51% 5.21% 5.93%
Investor C Class (Load Adjusted) 5.00% 4.53% 5.21% 5.93%
Investor C Class (NAV) 6.00% 4.53% 5.21% 5.93%
THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF
THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN
THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO'S SHARE
CLASSES WERE AS FOLLOWS: INSTITUTIONAL SHARES, 12/9/92; SERVICE SHARES, 1/12/96;
INVESTOR A SHARES, 1/31/96; INVESTOR B SHARES, 3/18/96; INVESTOR C SHARES,
2/28/97; AND BLACKROCK SHARES, 5/1/97. SEE "NOTE ON PERFORMANCE INFORMATION" ON
PAGE 11 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
5
<PAGE>
BLACKROCK FUNDS
GOVERNMENT INCOME PORTFOLIO
TOTAL NET ASSETS (9/30/00):
$31.6 MILLION
PERFORMANCE BENCHMARK:
LEHMAN BROTHERS MORTGAGE/MERRILL LYNCH 10-YEAR TREASURY INDEX
INVESTMENT APPROACH:
SEEKS CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL BY
INVESTING IN SECURITIES ISSUED OR GUARANTEED BY THE U.S. GOVERNMENT OR ITS
AGENCIES OR RATED AAA BY A MAJOR RATING AGENCY. THE PORTFOLIO EMPHASIZES
SECURITIES WITH MATURITIES FROM 10 TO 15 YEARS.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
oFOR THE PERIOD, TREASURY YIELDS ON THE SHORT END OF THE YIELD CURVE
INCREASED SHARPLY IN RESPONSE TO THE INCREASES TO THE DISCOUNT RATE BY THE
FEDERAL RESERVE AND UNCERTAINTY OVER FUTURE INTEREST RATE HIKES. AT THE SAME
TIME, YIELDS AT THE LONG END OF THE YIELD CURVE FELL. THE YIELD ON THE 10-YEAR
TREASURY FELL 0.06% FROM 5.88% ON SEPTEMBER 30, 1999 TO 5.82% ON SEPTEMBER 30,
2000 IN REACTION TO THE TREASURY'S ANNOUNCEMENT TO REPURCHASE UP TO $30 BILLION
IN SECURITIES.
oTHE MANAGER OVERWEIGHTED MORTGAGE PASS-THROUGH SECURITIES THROUGHOUT THE
PERIOD IN ORDER TO CAPITALIZE ON THE RELATIVE VALUE IN THE MORTGAGE SECTOR. THIS
HELPED PORTFOLIO PERFORMANCE AS SPREAD SECTORS RALLIED IN THE SECOND QUARTER OF
2000. IN THE THIRD QUARTER OF 2000, THE MANAGER SLIGHTLY DECREASED THE
PORTFOLIO'S PASS-THROUGH ALLOCATION IN FAVOR OF TREASURIES. TREASURIES RALLIED
IN THE THIRD QUARTER DUE TO THE BELIEF THAT THE FED HAD SUCCESSFULLY ENGINEERED
A SOFT LANDING AND COMPLETED THEIR INTEREST RATE HIKE CAMPAIGN.
Although the portfolio holdings and sectors listed above were current as of the
end of the annual period ended September 30, 2000, the Portfolio is actively
managed and the composition will vary.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
GOVERNMENT INCOME PORTFOLIO AND THE LEHMAN BROTHERS MORTGAGE INDEX/MERRILL LYNCH
10-YEAR TREASURY INDEX FROM INCEPTION AND AT EACH FISCAL YEAR END.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Lehman Brothers Mortgage
Investor A Investor B Investor C Index/Merrill Lynch
Class Class Class 10 Year Treasury Index
<S> <C> <C> <C> <C>
10/3/94 $ 9,550 $10,000 $10,000 $10,000
Dec-94 $ 9,541 $ 9,975 $ 9,975 $10,037
Mar-95 $10,024 $10,462 $10,462 $10,588
Jun-95 $10,718 $11,168 $11,168 $11,335
Sep-95 $10,912 $11,350 $11,350 $11,537
Dec-95 $11,353 $11,793 $11,793 $12,059
Mar-96 $11,132 $11,536 $11,536 $11,779
Jun-96 $11,156 $11,540 $11,540 $11,887
Sep-96 $11,393 $11,766 $11,766 $12,108
Dec-96 $11,740 $12,101 $12,101 $12,497
Mar-97 $11,713 $12,052 $12,052 $12,368
Jun-97 $12,171 $12,499 $12,499 $12,502
Sep-97 $12,588 $12,904 $12,904 $12,906
Dec-97 $12,975 $13,277 $13,277 $13,212
Mar-98 $13,182 $13,464 $13,464 $13,410
Jun-98 $13,510 $13,774 $13,774 $13,641
Sep-98 $13,988 $14,235 $14,235 $14,002
Dec-98 $14,012 $14,233 $14,233 $13,281
Mar-99 $13,894 $14,086 $14,086 $13,132
Jun-99 $13,693 $13,855 $13,855 $12,889
Sep-99 $13,793 $13,930 $13,930 $12,973
Dec-99 $13,696 $13,531 $13,807 $12,842
Mar-00 $13,992 $13,522 $14,079 $13,188
Jun-00 $14,299 $13,792 $14,361 $13,432
Sep-00 $14,812 $14,118 $14,835 $13,786
</TABLE>
FOR PERIOD ENDING SEPTEMBER 30, 2000
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
------ ------ ------ ----------------
Investor A Class (Load Adjusted) 2.52% 3.98% 5.34% 6.77%
Investor A Class (NAV) 7.38% 5.57% 6.31% 7.60%
Investor B Class (Load Adjusted) 2.09% 3.71% 5.20% 6.82%
Investor B Class (NAV) 6.59% 4.79% 5.52% 6.82%
Investor C Class (Load Adjusted) 5.48% 4.75% 5.49% 6.78%
Investor C Class (NAV) 6.48% 4.75% 5.49% 6.78%
THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF
THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN
THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO'S SHARE
CLASSES WERE AS FOLLOWS: INVESTOR A SHARES, 10/3/94; INVESTOR B SHARES, 10/3/94;
AND INVESTOR C SHARES, 2/28/97. SEE "NOTE ON PERFORMANCE INFORMATION" ON PAGE 11
FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
6
<PAGE>
BLACKROCK FUNDS
GNMA PORTFOLIO
TOTAL NET ASSETS (9/30/00):
$97.6 MILLION
PERFORMANCE BENCHMARK:
LEHMAN GNMA INDEX
INVESTMENT APPROACH:
SEEKS CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL BY
INVESTING IN SECURITIES ISSUED BY THE GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
("GNMAS"), AS WELL AS OTHER U.S. GOVERNMENT SECURITIES IN THE 5 TO 10 YEAR
MATURITY RANGE.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
oOVER THE COURSE OF THE YEAR, TREASURY YIELDS ON THE SHORT END OF THE CURVE
INCREASED SHARPLY IN RESPONSE TO THE INCREASES TO THE DISCOUNT RATE BY THE
FEDERAL RESERVE AND UNCERTAINTY OVER FUTURE INTEREST RATE HIKES. THE ONE-YEAR
TREASURY YIELD ROSE FROM 5.18% ON SEPTEMBER 30, 1999 TO 6.09% ON SEPTEMBER 30,
2000. FOR THE PERIOD, YIELDS AT THE LONG END OF THE YIELD CURVE FELL, AS THE
YIELD OF THE 10-YEAR TREASURY FELL 0.06% FROM 5.88% ON SEPTEMBER 30, 1999 TO
5.82% ON SEPTEMBER 30, 2000 IN REACTION TO THE TREASURY'S ANNOUNCEMENT TO
REPURCHASE UP TO $30 BILLION IN SECURITIES.
oGNMAS PERFORMED WELL DURING THIS PERIOD AS HIGH MORTGAGE RATES HOVERING
NEAR 8% THROUGHOUT THE YEAR CAUSED PREPAYMENTS TO DECLINE AND RESULTED IN AN
INCREASED DEMAND FOR GNMAS AND OTHER MORTGAGE-BACKED SECURITIES.
Although the portfolio holdings and sectors listed above were current as of the
end of the annual period ended September 30, 2000, the Portfolio is actively
managed and the composition will vary.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GNMA INCOME
PORTFOLIO AND THE LEHMAN GNMA INDEX FROM INCEPTION AND AT EACH FISCAL YEAR END.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Institutional Service Investor A Investor B Investor C Lehman
Class Class Class Class Class GNMA Index
9/1/86 $10,000 $10,000 $9,550 $10,000 $10,000 $10,000
Dec-86 $10,296 $10,289 $9,822 $10,265 $10,265 $10,357
Mar-87 $10,411 $10,396 $9,919 $10,348 $10,348 $10,588
Jun-87 $10,251 $10,228 $9,756 $10,158 $10,158 $10,450
Sep-87 $10,265 $10,234 $9,757 $10,141 $10,141 $10,191
Dec-87 $10,407 $10,368 $9,880 $10,250 $10,250 $10,801
Mar-88 $10,684 $10,636 $10,132 $10,491 $10,491 $11,256
Jun-88 $10,883 $10,826 $10,308 $10,654 $10,654 $11,461
Sep-88 $11,009 $10,943 $10,415 $10,744 $10,744 $11,719
Dec-88 $11,149 $11,074 $10,536 $10,848 $10,848 $11,754
Mar-89 $11,192 $11,109 $10,564 $10,857 $10,857 $11,888
Jun-89 $11,633 $11,537 $10,967 $11,250 $11,250 $12,865
Sep-89 $11,673 $11,569 $10,992 $11,255 $11,255 $13,052
Dec-89 $12,063 $11,947 $11,347 $11,596 $11,596 $13,597
Mar-90 $12,170 $12,044 $11,434 $11,664 $11,664 $13,593
Jun-90 $12,350 $12,213 $11,590 $11,800 $11,800 $14,109
Sep-90 $12,473 $12,325 $11,691 $11,881 $11,881 $14,285
Dec-90 $13,090 $12,925 $12,255 $12,431 $12,431 $15,036
Mar-91 $13,442 $13,262 $12,570 $12,727 $12,727 $15,498
Jun-91 $13,652 $13,460 $12,751 $12,887 $12,887 $15,801
Sep-91 $14,417 $14,204 $13,451 $13,569 $13,569 $16,659
Dec-91 $15,188 $14,952 $14,153 $14,251 $14,251 $17,448
Mar-92 $14,951 $14,708 $13,916 $13,986 $13,986 $17,314
Jun-92 $15,594 $15,329 $14,498 $14,544 $14,544 $17,998
Sep-92 $16,125 $15,839 $14,974 $14,994 $14,994 $18,562
Dec-92 $16,208 $15,908 $15,033 $15,024 $15,024 $18,741
Mar-93 $16,824 $16,501 $15,586 $15,549 $15,549 $19,275
Jun-93 $17,214 $16,871 $15,929 $15,861 $15,861 $19,636
Sep-93 $17,430 $17,070 $16,111 $16,042 $16,012 $19,785
Dec-93 $17,481 $17,108 $16,140 $16,071 $16,010 $19,974
Mar-94 $16,843 $16,470 $15,531 $15,465 $15,378 $19,491
Jun-94 $16,658 $16,278 $15,343 $15,278 $15,163 $19,384
Sep-94 $16,743 $16,348 $15,403 $15,337 $15,193 $19,544
Dec-94 $16,863 $16,453 $15,495 $15,429 $15,256 $19,674
Mar-95 $17,811 $17,365 $16,348 $16,278 $16,065 $20,712
Jun-95 $18,849 $18,364 $17,281 $17,207 $16,950 $21,807
Sep-95 $19,228 $18,718 $17,608 $17,533 $17,239 $22,294
Dec-95 $19,853 $19,313 $18,159 $18,081 $17,745 $23,029
Mar-96 $19,692 $19,142 $17,990 $17,913 $17,548 $22,957
Jun-96 $19,829 $19,261 $18,094 $18,017 $17,617 $23,120
Sep-96 $20,211 $19,617 $18,420 $18,341 $17,901 $23,606
Dec-96 $20,790 $20,164 $18,927 $18,846 $18,359 $24,303
Mar-97 $20,814 $20,172 $18,927 $18,846 $18,324 $24,335
Jun-97 $21,606 $20,924 $19,625 $19,541 $18,964 $25,284
Sep-97 $22,280 $21,561 $20,214 $20,127 $19,497 $26,029
Dec-97 $22,672 $21,924 $20,545 $20,457 $19,779 $26,620
Mar-98 $22,888 $22,116 $20,716 $20,627 $19,907 $27,051
Jun-98 $23,384 $22,574 $21,136 $21,046 $20,277 $27,509
Sep-98 $23,922 $23,077 $21,599 $21,507 $20,682 $28,212
Dec-98 $24,192 $23,322 $21,817 $21,683 $20,852 $28,463
Mar-99 $24,379 $23,485 $21,959 $21,783 $20,948 $28,747
Jun-99 $24,600 $23,680 $22,133 $21,914 $21,074 $29,009
Sep-99 $24,320 $23,393 $21,856 $21,598 $20,770 $28,887
Dec-99 $24,259 $23,318 $21,775 $21,479 $20,656 $29,011
Mar-00 $24,781 $23,801 $22,217 $21,875 $21,036 $29,577
Jun-00 $25,385 $24,363 $22,733 $22,340 $21,461 $30,204
Sep-00 $26,190 $25,116 $23,403 $22,979 $22,077 $31,110
FOR PERIOD ENDING SEPTEMBER 30, 2000
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
1 Year 3 Year 5 Year 10 Year From Inception
------ ------ ------ -------- ----------------
<S> <C> <C> <C> <C> <C>
Institutional Class 7.69% 6.03% 6.68% 7.84% 7.77%
Service Class 7.36% 5.71% 6.35% 7.52% 7.44%
Investor A Class (Load Adjusted) 2.82% 4.07% 5.29% 6.89% 6.83%
Investor A Class (NAV) 7.07% 5.49% 6.15% 7.33% 7.25%
Investor B Class (Load Adjusted) 1.89% 3.68% 5.06% 6.32% 6.47%
Investor B Class (NAV) 6.39% 4.75% 5.39% 6.54% 6.47%
Investor C Class (Load Adjusted) 5.28% 4.71% 5.36% 6.53% 6.46%
Investor C Class (NAV) 6.28% 4.71% 5.36% 6.53% 6.46%
</TABLE>
IN CONNECTION WITH THE CONVERSION OF VARIOUS COMMON TRUST FUNDS MAINTAINED BY
PNC BANK AND PNC BANK, DELAWARE ("PNC-DE"), AN AFFILIATE OF PNC BANK, INTO THE
FUND BETWEEN MAY 1 AND MAY 15, 1998 (THE "CTF CONVERSION"), THE GNMA PORTFOLIO
WAS ESTABLISHED TO RECEIVE THE ASSETS OF THE GNMA FUND OF PNC BANK. PERFORMANCE
INFORMATION PRESENTED FOR THIS PORTFOLIO INCLUDES PERFORMANCE FOR THE
PREDECESSOR COMMON TRUST FUND WHICH TRANSFERRED ITS ASSETS AND LIABILITIES TO
THE RELATED PORTFOLIO PURSUANT TO THE CTF CONVERSION. PERFORMANCE INFORMATION
PRESENTED IS BASED UPON THE PERFORMANCE OF THE GNMA FUND FOR PERIODS PRIOR TO
THE CTF CONVERSION.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
7
<PAGE>
BLACKROCK FUNDS
MANAGED INCOME PORTFOLIO
TOTAL NET ASSETS (9/30/00):
$1.5 BILLION
PERFORMANCE BENCHMARK:
LEHMAN BROTHERS AGGREGATE INDEX
INVESTMENT APPROACH:
SEEKS CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL BY
INVESTING IN SECURITIES RATED BBB OR HIGHER BY A MAJOR RATING AGENCY OR DEEMED
BY THE MANAGER TO BE OF COMPARABLE CREDIT QUALITY. THE PORTFOLIO EMPHASIZES
SECURITIES WITH MATURITIES FROM 5 TO 10 YEARS.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
oOVER THE COURSE OF THE YEAR, TREASURY YIELDS ON THE SHORT END OF THE YIELD
CURVE INCREASED SHARPLY IN RESPONSE TO THE INCREASES TO THE DISCOUNT RATE BY THE
FEDERAL RESERVE AND UNCERTAINTY OVER FUTURE INTEREST RATE HIKES. DURING THE
PERIOD, THE YIELD ON THE 10-YEAR TREASURY DECREASED FROM 5.88% ON SEPTEMBER 30,
1999 TO 5.82% ON SEPTEMBER 30, 2000 IN REACTION TO THE TREASURY'S ANNOUNCEMENT
TO REPURCHASE UP TO $30 BILLION IN SECURITIES. RECENTLY, HOWEVER, WE HAVE BEGUN
TO SEE A NORMALIZING OF THE YIELD CURVE DUE TO SLOWER U.S. GROWTH.
oDUE TO THE PORTFOLIO'S PRIMARY OBJECTIVE OF PROVIDING CURRENT INCOME, THE
MANAGER MAINTAINED OVERWEIGHT POSITIONS VERSUS THE INDEX IN SPREAD SECTORS. THE
PORTFOLIO INCREASED ITS OVERALL MORTGAGE EXPOSURE, FOCUSING ON MORTGAGE
PASS-THROUGHS TO TAKE ADVANTAGE OF ATTRACTIVE YIELDS RELATIVE TO OTHER SPREAD
SECTORS. THE PORTFOLIO'S TREASURY ALLOCATION WAS DECREASED AND ROTATED INTO
MORTGAGES AND CORPORATES DUE TO ATTRACTIVE RELATIVE VALUATION.
oIN THE MORTGAGE SECTOR WE FAVOR SEASONED PASS-THROUGHS AND 15-YEAR
SECURITIES, WHICH APPEAR TO OFFER AN ATTRACTIVE TOTAL RETURN OPPORTUNITY. WE
CONTINUE TO OVERWEIGHT COMMERCIAL MORTGAGE-BACKED SECURITIES (CMBS) GIVEN OUR
OUTLOOK FOR CONTINUED STRONG PERFORMANCE IN THIS SECTOR. THE PORTFOLIO'S
ASSET-BACKED SECURITY EXPOSURE WAS REDUCED ON STRENGTH IN THE CREDIT CARD AND
AUTO SECTORS IN FAVOR OF MORTGAGES. THE PORTFOLIO'S RETURNS SUFFERED DUE TO THE
OVERWEIGHT IN SPREAD PRODUCT, AS THE GOVERNMENT BUYBACK OF TREASURIES CAUSED AN
INVERTED YIELD CURVE RESULTING IN TREASURIES OUTPERFORMING SPREAD PRODUCT.
oTHE BOND MARKET HAS TRADITIONALLY MOVED INVERSELY TO THE EQUITY MARKET.
SINCE EQUITIES ARE NOW SHOWING SIGNS OF A SLOWDOWN, WE ARE POSITIVE BUT NOT
BULLISH IN OUR OUTLOOK FOR THE BOND MARKET. TREASURY YIELDS ARE DOWN, SO WE WILL
CONTINUE TO HAVE A VERY UNDERWEIGHT POSITION IN TREASURIES RELATIVE TO THE
BENCHMARK.
Although the portfolio holdings and sectors listed above were current as of the
end of the annual period ended September 30, 2000, the Portfolio is actively
managed and the composition will vary.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE MANAGED INCOME
PORTFOLIO AND THE LEHMAN BROTHERS AGGREGATE INDEX FROM INCEPTION AND AT EACH
FISCAL YEAR END.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Institutional Service Investor A Investor B Investor C Lehman Brothers
Class Class Class Class Class Aggregate Index
<S> <C> <C> <C> <C> <C> <C>
11/1/89 $10,000 $10,000 $ 9,550 $10,000 $10,000 $10,000
Dec-89 $10,105 $10,105 $ 9,650 $10,000 $10,000 $10,027
Mar-90 $10,004 $10,004 $ 9,554 $ 9,900 $ 9,900 $ 9,946
Jun-90 $10,306 $10,306 $ 9,843 $10,199 $10,199 $10,309
Sep-90 $10,380 $10,380 $ 9,913 $10,272 $10,272 $10,397
Dec-90 $10,943 $10,943 $10,451 $10,830 $10,830 $10,923
Mar-91 $11,161 $11,161 $10,659 $11,045 $11,045 $11,227
Jun-91 $11,259 $11,259 $10,752 $11,142 $11,142 $11,411
Sep-91 $11,910 $11,910 $11,374 $11,786 $11,786 $12,059
Dec-91 $12,580 $12,580 $12,014 $12,449 $12,449 $12,671
Mar-92 $12,290 $12,290 $11,737 $12,162 $12,162 $12,509
Jun-92 $12,749 $12,749 $12,175 $12,617 $12,617 $13,014
Sep-92 $13,316 $13,316 $12,717 $13,177 $13,177 $13,574
Dec-92 $13,323 $13,323 $12,724 $13,185 $13,185 $13,609
Mar-93 $14,022 $14,022 $13,391 $13,876 $13,876 $14,172
Jun-93 $14,457 $14,457 $13,806 $14,306 $14,306 $14,549
Sep-93 $14,935 $14,940 $14,263 $14,780 $14,780 $14,928
Dec-93 $14,881 $14,862 $14,186 $14,701 $14,701 $14,936
Mar-94 $14,370 $14,343 $13,690 $14,186 $14,186 $14,507
Jun-94 $14,110 $14,079 $13,422 $13,909 $13,909 $14,357
Sep-94 $14,145 $14,104 $13,440 $13,927 $13,927 $14,445
Dec-94 $14,215 $14,166 $13,492 $13,981 $13,981 $14,500
Mar-95 $14,894 $14,835 $14,122 $14,634 $14,634 $15,231
Jun-95 $15,744 $15,671 $14,909 $15,449 $15,449 $16,159
Sep-95 $16,022 $15,935 $15,153 $15,702 $15,702 $16,477
Dec-95 $16,701 $16,602 $15,778 $16,350 $16,350 $17,179
Mar-96 $16,369 $16,260 $15,443 $16,003 $16,003 $16,872
Jun-96 $16,437 $16,315 $15,490 $16,051 $16,051 $16,969
Sep-96 $16,716 $16,580 $15,734 $16,304 $16,304 $17,281
Dec-96 $17,277 $17,123 $16,243 $16,831 $16,831 $17,800
Mar-97 $17,227 $17,060 $16,177 $16,762 $16,762 $17,701
Jun-97 $17,848 $17,663 $16,740 $17,346 $17,346 $18,351
Sep-97 $18,432 $18,228 $17,267 $17,892 $17,892 $18,960
Dec-97 $18,913 $18,689 $17,697 $18,338 $18,338 $19,517
Mar-98 $19,189 $18,949 $17,936 $18,585 $18,585 $19,818
Jun-98 $19,692 $19,432 $18,384 $19,050 $19,050 $20,282
Sep-98 $20,137 $19,856 $18,778 $19,457 $19,457 $21,140
Dec-98 $20,292 $19,993 $18,900 $19,582 $19,582 $21,212
Mar-99 $20,304 $19,989 $18,888 $19,570 $19,570 $21,103
Jun-99 $20,097 $19,769 $18,673 $19,312 $19,312 $20,918
Sep-99 $20,252 $19,907 $18,796 $19,402 $19,402 $21,060
Dec-99 $20,169 $19,810 $18,697 $19,265 $19,265 $21,003
Mar-99 $20,604 $20,212 $19,039 $19,619 $19,579 $21,467
Jun-00 $20,959 $20,545 $19,364 $19,896 $19,835 $21,839
Sep-00 $21,640 $21,199 $19,951 $20,483 $20,420 $22,496
</TABLE>
FOR PERIOD ENDING SEPTEMBER 30, 2000
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
1 Year 3 Year 5 Year 10 Year From Inception
------ ------ ------ ------- ---------------
<S> <C> <C> <C> <C> <C>
Institutional Class 6.84% 5.49% 6.19% 7.62% 7.33%
Service Class 6.52% 5.17% 5.88% 7.40% 7.12%
Investor A Class (Load Adjusted) 1.53% 3.40% 4.72% 6.77% 6.55%
Investor A Class (NAV) 6.35% 5.00% 5.69% 7.26% 7.00%
Investor B Class (Load Adjusted) 1.06% 3.13% 4.89% 6.41% 6.77%
Investor B Class (NAV) 5.56% 4.22% 5.21% 7.02% 6.77%
Investor C Class (Load Adjusted) 4.56% 4.11% 5.15% 6.99% 6.74%
Investor C Class (NAV) 5.56% 4.11% 5.15% 6.99% 6.74%
</TABLE>
THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF
THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN
THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO'S SHARE
CLASSES WERE AS FOLLOWS: INSTITUTIONAL SHARES, 11/1/89; INVESTOR A SHARES,
2/5/92; SERVICE SHARES, 7/29/93; INVESTOR B SHARES, 7/15/97; AND INVESTOR C
SHARES, 11/22/99. SEE "NOTE ON PERFORMANCE INFORMATION" ON PAGE 11 FOR FURTHER
INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED. THE COMPARATIVE INDEX FROM
PREVIOUS YEARS HAS CHANGED FROM THE SALOMON BROAD INVESTMENT GRADE INDEX TO THE
LEHMAN AGGREGATE TO MORE ACCURATELY REFLECT THE TYPE OF HOLDINGS OF MANAGED
INCOME.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
8
<PAGE>
BLACKROCK FUNDS
INTERNATIONAL BOND PORTFOLIO
TOTAL NET ASSETS (9/30/00):
$84.2 MILLION
PERFORMANCE BENCHMARK:
SALOMON NON-U.S. HEDGED WORLD GOVERNMENT BOND INDEX
INVESTMENT APPROACH:
PURSUES CURRENT INCOME CONSISTENT WITH THE PRESERVATION OF CAPITAL BY
INVESTING PRIMARILY IN INVESTMENT GRADE INTERNATIONAL FIXED INCOME SECURITIES.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
oU.S. TREASURIES LED A RALLY ACROSS MOST INTERNATIONAL BOND MARKETS IN THE
EARLY PART OF THE YEAR, AS LACK OF SUPPLY AND BUY BACKS DUE TO GOVERNMENT
SURPLUSES AND IMPROVED DEFICITS DROVE YIELDS LOWER. BOND INVESTORS ALSO TOOK
HEART IN FAIRLY LOW CORE INFLATION NUMBERS AND THE BELIEF THAT THE WORLD'S
CENTRAL BANKS WOULD KEEP INFLATION IN CHECK OVER LONGER PERIODS. DUE TO THEIR
TENDENCY TO TRADE IN LINE WITH THE U.S. MARKET, THE DOLLAR BLOC MARKETS SHOWED
THE BEST RETURNS FOLLOWED BY NON-ECONOMIC AND MONETARY UNION (EMU) EUROPEAN
COUNTRIES SUCH AS THE U.K. AND SWEDEN, WHERE SUPPLY WAS ALSO LIGHT. JAPAN WAS
THE MAJOR EXCEPTION IN THE FIRST HALF OF THE YEAR, AS LARGE BUDGET DEFICITS AND
BETTER ECONOMIC GROWTH SPARKED A RETRENCHMENT IN JGB (JAPANESE GOVERNMENT BOND)
YIELDS.
oTHE PORTFOLIO REMAINED GENERALLY CURRENCY HEDGED DURING THE ANNUAL PERIOD,
WHICH RESULTED IN MIXED RETURNS. IN CURRENCY MARKETS, THE EURO CONTINUED TO
DEPRECIATE AFTER STRENGTHENING SOMEWHAT DURING THE FIRST PART OF JANUARY. THE
EURO ENDED THE FISCAL YEAR AT BELOW 0.90 VERSUS THE U.S. DOLLAR AND NEAR 92
VERSUS THE JAPANESE YEN, BOTH NEAR ALL-TIME LOWS. INTERNATIONAL INVESTORS REMAIN
SKEPTICAL ON THE RELATIVE MERITS OF THE EURO GIVEN THE SUPERIOR ECONOMIC
PERFORMANCE OF THE DOLLAR BLOC AND THE COMBINATION OF LARGE CURRENT ACCOUNT
SURPLUS AND IMPROVED GROWTH PROSPECTS IN JAPAN. THE JAPANESE YEN FELL RELATIVE
TO THE U.S. DOLLAR DURING THE PERIOD. THE JAPANESE YEN ENDED THE FISCAL YEAR
NEAR 107 PER DOLLAR, DECLINING FROM 102.5 PER DOLLAR DURING ITS RALLY IN MARCH.
oINITIALLY THE PORTFOLIO'S PERFORMANCE WAS HURT DUE TO AN UNDERWEIGHT
POSITION IN JAPANESE BONDS VERSUS THE INDEX, BUT WAS REWARDED WHEN THE JAPANESE
RALLY SLOWED DOWN. THE PORTFOLIO WAS ALSO REWARDED FOR ITS OVERWEIGHT POSITION
IN CONTINENTAL EUROPE AND THE UNITED KINGDOM, WHICH PERFORMED WELL DUE TO LACK
OF INFLATIONARY PRESSURES.
Although the portfolio holdings and sectors listed above were current as of the
end of the annual period ended September 30, 2000, the Portfolio is actively
managed and the composition will vary.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INTERNATIONAL BOND
PORTFOLIO AND THE SALOMON NON-U.S. HEDGED WORLD GOVERNMENT BOND INDEX FROM
INCEPTION AND AT EACH FISCAL YEAR END.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Institutional Service Investor A Investor B Investor C Salomon Non-U.S. Hedged
Class Class Class Class Class World Government Bond Index
<S> <C> <C> <C> <C> <C> <C>
7/1/91 $10,000 $10,000 $ 9,500 $10,000 $10,000 $10,000
Sep-91 $10,360 $10,360 $ 9,894 $10,360 $10,360 $10,482
Dec-91 $10,600 $10,600 $10,123 $10,600 $10,600 $10,909
Mar-92 $10,470 $10,470 $ 9,999 $10,470 $10,470 $10,846
Jun-92 $11,008 $11,008 $10,513 $11,008 $11,008 $11,157
Sep-92 $11,298 $11,298 $10,789 $11,298 $11,298 $11,581
Dec-92 $11,254 $11,254 $10,747 $11,254 $11,254 $11,766
Mar-93 $11,717 $11,717 $11,190 $11,717 $11,717 $12,169
Jun-93 $12,116 $12,116 $11,571 $12,116 $12,116 $12,483
Sep-93 $12,689 $12,689 $12,118 $12,689 $12,689 $12,932
Dec-93 $12,977 $12,977 $12,393 $12,977 $12,977 $13,225
Mar-94 $12,715 $12,715 $12,143 $12,715 $12,715 $12,803
Jun-94 $12,453 $12,453 $11,892 $12,453 $12,453 $12,561
Sep-94 $12,369 $12,369 $11,812 $12,369 $12,369 $12,580
Dec-94 $12,496 $12,496 $11,933 $12,496 $12,496 $12,732
Mar-95 $13,545 $13,545 $12,936 $13,545 $13,545 $13,323
Jun-95 $14,054 $14,054 $13,421 $14,054 $14,054 $14,016
Sep-95 $14,302 $14,302 $13,658 $14,302 $14,302 $14,427
Dec-95 $14,998 $14,998 $14,323 $14,998 $14,998 $15,032
Mar-96 $15,051 $15,051 $14,374 $15,051 $15,051 $15,011
Jun-96 $15,395 $15,394 $14,697 $15,370 $15,370 $15,291
Sep-96 $16,002 $15,989 $15,259 $15,928 $15,928 $15,797
Dec-96 $16,590 $16,558 $15,793 $16,442 $16,442 $16,340
Mar-97 $16,762 $16,717 $15,938 $16,562 $16,562 $16,458
Jun-97 $17,335 $17,276 $16,378 $17,078 $17,078 $16,988
Sep-97 $17,859 $17,783 $16,853 $17,539 $17,539 $17,565
Dec-97 $18,294 $18,203 $17,244 $17,911 $17,911 $18,069
Mar-98 $18,777 $18,671 $17,679 $18,328 $18,328 $18,527
Jun-98 $19,112 $18,988 $17,972 $18,597 $18,597 $18,955
Sep-98 $20,092 $19,947 $18,872 $19,529 $19,492 $19,942
Dec-98 $20,395 $20,232 $19,135 $19,800 $19,726 $20,052
Mar-99 $20,697 $20,518 $19,397 $20,071 $19,958 $20,395
Jun-99 $20,519 $20,327 $19,209 $19,838 $19,729 $20,266
Sep-99 $20,474 $20,266 $19,143 $19,733 $19,624 $20,167
Dec-99 $20,492 $20,284 $19,140 $19,690 $19,581 $20,403
Mar-00 $20,923 $20,692 $19,517 $20,044 $19,934 $20,846
Jun-00 $21,475 $21,222 $20,008 $20,511 $20,398 $21,223
Sep-00 $21,918 $21,642 $20,397 $20,870 $20,755 $21,571
</TABLE>
FOR PERIOD ENDING SEPTEMBER 30, 2000
AVERAGE ANNUAL TOTAL RETURN
1 Year 3 Year 5 Year From Inception
------ ------ ------ ----------------
Institutional Class 7.04% 7.06% 8.91% 8.84%
Service Class 6.72% 6.74% 8.63% 8.69%
Investor A Class (Load Adjusted) 1.20% 4.76% 7.35% 8.00%
Investor A Class (NAV) 6.54% 6.56% 8.46% 8.60%
Investor B Class (Load Adjusted) 1.24% 4.71% 7.43% 8.20%
Investor B Class (NAV) 5.74% 5.77% 7.73% 8.20%
Investor C Class (Load Adjusted) 4.74% 5.77% 7.73% 8.20%
Investor C Class (NAV) 5.74% 5.77% 7.73% 8.20%
THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF
THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN
THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO'S SHARE
CLASSES WERE AS FOLLOWS: SERVICE SHARES, 7/1/91; INVESTOR BSHARES, 4/19/96;
INVESTOR A SHARES, 4/22/96; INSTITUTIONAL SHARES, 6/10/96; AND INVESTOR C
SHARES, 9/11/96. SEE "NOTE ON PERFORMANCE INFORMATION" ON PAGE 11 FOR FURTHER
INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
9
<PAGE>
BLACKROCK FUNDS
HIGH YIELD BOND PORTFOLIO
TOTAL NET ASSETS (9/30/00):
$121.6 MILLION
PERFORMANCE BENCHMARK:
LEHMAN HIGH YIELD INDEX
INVESTMENT APPROACH:
SEEKS CURRENT INCOME BY INVESTING PRIMARILY IN NON-INVESTMENT GRADE
SECURITIES (RATED C OR HIGHER OR DEEMED TO BE OF COMPARABLE QUALITY) WHICH HAVE
THE POTENTIAL FOR ABOVE-AVERAGE CURRENT INCOME.
RECENT PORTFOLIO MANAGEMENT ACTIVITY:
oAT THE BEGINNING OF THE PERIOD, HIGH YIELD SPREADS WIDENED COMPARED TO
TREASURIES. THE COMBINATION OF CASH EXITING HIGH YIELD MUTUAL FUNDS, INTEREST
RATE CONCERNS, AND THE VOLATILITY IN THE U.S. EQUITY MARKETS CAUSED HIGH YIELD
PERFORMANCE TO SUFFER. IN MID-JUNE HIGH YIELD BOND VOLUME PICKED UP AS SPREADS
TIGHTENED AND PRICES INCREASED. STRENGTH CONTINUED THROUGH JULY, BUT AUGUST
BROUGHT ABOUT DISAPPOINTMENT AS HIGH YIELD PRICES FELL AND REMAINED UNCHANGED
FOR THE REST OF THE PERIOD.
oTHE PORTFOLIO REMAINED OVERWEIGHT B RATED SECURITIES AND UNDERWEIGHT BBB'S
VERSUS ITS BENCHMARK. ALTHOUGH NEW ISSUE SUPPLY OF HIGH YIELD BONDS REMAINED
LIGHT, DEMAND FOR BB'S REMAINED STRONG. BB'S OUTPERFORMED B'S AND CCC'S AS THE
CREDIT CURVE CONTINUED TO STEEPEN, CAUSING HIGHER QUALITY CREDITS TO OUTPERFORM
THROUGHOUT THE PERIOD.
oIN RESPONSE TO THE MARKET'S NARROWED FOCUS, THE PORTFOLIO FAVORED THE
ENERGY, INFORMATION TECHNOLOGY AND UTILITY SECTORS. THE OUTPERFORMANCE IN THE
ENERGY SECTOR WAS DRIVEN BY HIGHER COMMODITY PRICES, WHILE INFORMATION
TECHNOLOGY BENEFITED FROM STRONG DEMAND FOR MICROPROCESSORS. THE UTILITY SECTOR
WAS REWARDED AS A RESULT OF HIGH CREDIT QUALITY AND STABILITY IN THE SECTOR.
TELECOM AND AUTO SUPPLIERS PROVED TO BE THE WORST PERFORMERS.
Although the portfolio holdings and sectors listed above were current as of the
end of the annual period ended September 30, 2000, the Portfolio is actively
managed and the composition will vary.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE HIGH YIELD BOND
PORTFOLIO AND THE LEHMAN HIGH YIELD INDEX FROM INCEPTION AND AT EACH MONTH-END.
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Institutional Service Investor A Investor B Investor C BlackRock Lehman High Yield
Class Class Class Class Class Class Index
<S> <C> <C> <C> <C> <C> <C> <C>
Nov-98 $10,000 $10,000 $ 9,500 $10,000 $10,000 $10,000 $10,000
Dec-98 $10,128 $10,106 $ 9,616 $10,113 $10,113 $10,110 $10,160
Mar-99 $10,466 $10,435 $ 9,926 $10,418 $10,418 $10,452 $10,347
Jun-99 $10,622 $10,584 $10,062 $10,542 $10,542 $10,613 $10,383
Sep-99 $10,592 $10,548 $10,022 $10,481 $10,481 $10,587 $10,235
Dec-99 $11,013 $10,960 $10,397 $10,864 $10,852 $11,011 $10,403
Mar-00 $10,883 $10,822 $10,272 $10,703 $10,702 $10,884 $10,159
Jun-00 $10,985 $10,919 $10,334 $10,779 $10,815 $10,995 $10,276
Sep-00 $10,906 $10,836 $10,235 $10,250 $10,749 $10,924 $10,335
</TABLE>
FOR PERIOD ENDING SEPTEMBER 30, 2000
AVERAGE ANNUAL TOTAL RETURN
1 Year From Inception
------ ----------------
BlackRock Class 3.26% 4.89%
Institutional Class 3.11% 4.84%
Service Class 2.80% 4.42%
Investor A Class (Load Adjusted) (2.49)% 1.52%
Investor A Class (NAV) 2.63% 4.35%
Investor B Class (Load Adjusted) (2.76)% 1.38%
Investor B Class (NAV) 1.74% 3.48%
Investor C Class (Load Adjusted) 0.86% 3.50%
Investor C Class (NAV) 1.86% 3.50%
THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF
THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN
THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO'S SHARE
CLASSES WERE AS FOLLOWS: BLACKROCK SHARES; INSTITUTIONAL SHARES; SERVICE SHARES;
INVESTOR A SHARES; INVESTOR B SHARES; AND INVESTOR C SHARES, 11/19/98. SEE "NOTE
ON PERFORMANCE INFORMATION" ON PAGE 11 FOR FURTHER INFORMATION ON HOW
PERFORMANCE DATA WAS CALCULATED.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
10
<PAGE>
BLACKROCK FUNDS
NOTE ON PERFORMANCE INFORMATION
The performance information above includes information for each class of
each Portfolio since the commencement of operations of the Portfolio, rather
than the date such class was introduced. Performance information for each class
introduced after the commencement of operations of a Portfolio is therefore
based on the performance history of a predecessor class or predecessor classes.
If a class of shares in a Portfolio (the "Subsequent Class") has more than one
predecessor class, the performance data predating the introduction of the
Subsequent Class is based initially on the performance of the Portfolio's first
operational predecessor class (the "Initial Class"); thereafter, the performance
of the Subsequent Class is based upon the performance of any other predecessor
class or classes which were introduced after the Initial Class and which had
total operating expenses more similar to those of the Subsequent Class. In the
case of Investor A, Investor B, Investor C and Service Shares, the performance
information for periods prior to their introduction dates has not been restated
to reflect the shareholder servicing and processing and/or distribution fees and
certain other expenses borne by these share classes which, if reflected, would
reduce the performance quoted. Accordingly, the performance information may be
used in assessing each Portfolio's performance history but does not reflect how
the distinct classes would have performed on a relative basis prior to the
introduction of these classes, which would require an adjustment to the ongoing
expenses.
Performance information is restated to reflect the current maximum
front-end sales charge (in the case of Investor A Shares) or the maximum
contingent deferred sales charge (in the case of Investor B and Investor C
Shares), and assumes the reinvestment of dividends and distributions. The
maximum front-end sales charges for Investor A Shares are as follows:
Intermediate Government Bond, Intermediate Bond, Core Bond and GNMA -- 4.00%;
Government Income and Managed Income -- 4.50%; International Bond and High Yield
Bond -- 5.00%; and Low Duration Bond -- 3.00%. The maximum contingent deferred
sales charge for Investor B Shares and Investor C Shares of all of the
Portfolios is 4.50% and 1.00%, respectively.
The performance information also reflects fee waivers that subsidize and
reduce the total operating expenses of each Portfolio. The Portfolios' returns
would have been lower if there were not such waivers. BlackRock Advisors Inc.
and the Portfolio's Administrators are under no obligation to waive or continue
waiving their fees. Investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
--------------------------------------------------------------------------------
IMPORTANT TAX INFORMATION FOR SHAREHOLDERS OF THE BLACKROCK TAXABLE BOND
PORTFOLIOS (UNAUDITED)
During the fiscal year ended September 30, 2000, the following Portfolios
of the BlackRock Funds declared the following dividends from net realized
capital gains:
SHORT-TERM LONG-TERM
CAPITAL GAIN, CAPITAL GAIN,
PER SHARE PER SHARE
------------ -------------
Intermediate Government Bond Portfolio ... $0.0136 $ --
Intermediate Bond Portfolio .............. 0.0005 --
Core Bond Portfolio ...................... 0.0138 --
GNMA Portfolio. .......................... 0.0075 0.0109
Managed Income Portfolio ................. 0.0187 0.0050
International Bond Portfolio ............. 0.0603 0.0593
Because the Portfolios' fiscal year is not the calendar year, another
notification will be sent with respect to calendar year 2000. The second
notification, which reflects the amounts to be used by calendar year taxpayers
on their U.S. federal income tax returns, has been made in conjunction with Form
1099-DIV and will be mailed in January 2001.
11
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
LOW DURATION BOND PORTFOLIO
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 27.1%
Small Business Administration
Participation Certificates,
Series 97, Class A
7.35%** 08/15/22 $1,114 $ 1,108,669
U.S. Treasury Notes
5.50%+ 08/31/01 9,035 8,972,884
5.87%+ 11/30/01 7,615 7,584,068
6.50%+ 02/28/022 3,990 24,109,950
6.37%+ 04/02-06/02 6,925 6,960,175
6.62%+ 05/31/02 1,055 1,064,231
6.25%+ 07/31/02 2,150 2,158,062
6.12%+ 08/31/02 8,490 8,505,919
U.S. Treasury Notes (CPI)
3.62%+ 01/15/08 4,650 4,854,592
3.87% 01/15/09 1,000 1,043,889
------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $66,203,033) 66,362,439
------------
MORTGAGE PASS-THROUGHS -- 36.2%
Federal Home Loan
Mortgage Corp.
7.25% 07/06-06/08 35 35,202
7.50% 07/01/07 1,797 1,814,747
8.25% 06/01/09 55 56,155
8.75% 01/01/13 1,038 1,069,384
7.21%**+ 10/01/22 3,592 3,643,414
6.49% 06/01/28 1,752 1,738,388
Federal Home Loan
Mortgage Corp.
30 Year Balloon
8.25% 09/01/09 255 260,380
7.50% 04/01/22 544 544,126
6.96% 07/01/27 3,222 3,242,296
Federal Home Loan
Mortgage Corp.
Gold
7.00%+ 09/01/11 2,560 2,549,448
Federal National
Mortgage Association
6.29% 10/04/00 2,000 1,999,940
6.20% 02/26/01 4,270 4,240,441
6.72% 02/26/01 457 454,163
7.50% 06/03-05/09 4,496 4,495,613
6.00% 11/03-01/04 3,956 3,864,171
7.00%+ 06/04-03/13 4,127 4,155,252
6.50%+ 10/05-11/08 5,085 5,029,290
5.50%+ 06/09-07/09 3,448 3,261,031
8.00% 08/01/09 2,187 2,225,760
8.08%** 08/01/22 1,986 2,036,279
8.14%**+ 02/01/24 4,880 5,011,698
Federal National Mortgage
Association 10 Year Balloon
6.00% 12/03-02/04 3,276 3,193,787
Federal National Mortgage
Association 15 Year Balloon
7.00% 12/08-09/14 5,926 5,905,744
Federal National Mortgage
Association 30 Year Balloon
7.00% 07/01/01 9 9,083
Par
Maturity (000) Value
--------- ------- ------------
MORTGAGE PASS-THROUGHS (CONTINUED)
Government National
Mortgage Association
7.00% 09/02-05/12 $5,567 $ 5,581,348
7.25% 04/15/06 311 309,658
8.25%+ 08/08-09/08 3,157 3,219,288
7.00% 10/15/09 2,908 2,919,208
7.50%+ 04/15/13 2,513 2,551,935
7.37%** 06/22-01/24 4,912 4,950,936
6.75%** 07/20/27 1,074 1,081,705
Government National
Mortgage Association
15 Year Balloon
6.00% 12/15/08 1,834 1,788,138
Government National
Mortgage Association
30 Year Balloon
6.50% 03/24-04/24 1,094 1,059,356
MLCC Mortgage Investors, Inc.,
Series 95-C3, Class A3
7.07%** 12/26/25 200 199,186
MLCC Mortgage Investors, Inc.,
Series 97-B, Class A
6.89%** 03/16/26 2,118 2,112,457
MLCC Mortgage Investors, Inc.,
Series 99-A, Class A
7.00%** 02/15/26 2,240 2,240,940
------------
TOTAL MORTGAGE
PASS-THROUGHS
(Cost $89,067,647) 88,849,947
------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 0.1%
Residential Accredit Loans, Inc.,
Series 97-QS7, Class A1
7.50% 07/25/27 34 33,897
Residential Accredit Loans, Inc.,
Series 99-QS2, Class A3
6.50% 02/25/29 1,307 1,266,521
------------
TOTAL MULTIPLE CLASS
MORTGAGE PASS-THROUGHS
(Cost $1,257,971) 1,300,418
------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 18.5%
Asset Securitization Corp.,
Series 97-D5, Class A1A
6.50% 02/14/41 2,567 2,532,960
Bayview Financial Acquisition
Trust, Series 98-1, Class AI
7.01% 05/25/29 2,257 2,195,277
Bosque Asset Corp.,
Series 97-1, Class A1
7.66% 06/05/02 610 591,330
Conseco Finance Securitizations
Corp., Series 00-4, Class A2
7.35% 05/01/32 2,275 2,283,531
Conseco Finance Securitizations
Corp., Series 00-2, Class A3
8.07% 12/01/31 2,900 2,960,714
Copelco Capital Funding Corp.,
Series 99-A, Class A3
5.66% 03/15/02 2,850 2,837,531
See accompanying notes to financial statements.
12
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
LOW DURATION BOND PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
COMMERCIAL MORTGAGE BACKED
SECURITIES (CONTINUED)
Deutsche Mortgage and Asset
Receiving Corp.,
Series 98-C1, Class A1
6.22% 09/15/07 $1,097 $ 1,070,593
Donaldson, Lufkin and Jenrette, Inc.
Mortgage Acceptance Corp.,
Series 95-CF2, Class A1A
6.65% 12/17/27 866 860,139
Donaldson, Lufkin and Jenrette, Inc.
Mortgage Acceptance Corp.,
Series 96-CF2, Class A1A
6.86% 11/12/21 1,920 1,907,563
Donaldson, Lufkin and Jenrette, Inc.
Mortgage Acceptance Corp.,
Series 97-1, Class A1A
7.40% 05/15/06 333 334,865
Federal National Mortgage
Association, Series 98-32,
Class B
6.00% 05/18/13 2,059 2,018,640
Housing Securities, Inc.,
Series 93-G, Class G4A
6.62% 01/25/09 2,500 2,482,513
IFC Small Business Administration
Loan-Backed Adjustable Rate
Certificates, Series 97-1,
Class A
7.00%** 01/15/24 1,921 1,906,344
Lehman Brothers Commercial
Conduit Mortgage Trust,
Series 96-C2, Class A
7.47%**++ 06/25/06 875 886,594
Merit Securities Corp.,
Series 98-11, Class 2A2
6.92%** 11/28/22 2,036 2,032,366
Prudential Home Mortgage
Securities, Inc.,
Series 94-19, Class A2
7.05% 05/25/24 1,445 1,438,724
Residential Funding Management
Securities I, Series 97, Class A8
7.50% 06/25/27 846 842,105
Salomon Brothers Mortgage
Securities VII, Series 92-5,
Class A1
7.65%** 11/25/22 198 196,851
Structured Asset Mortgage
Investments, Inc.,
Series 98-9, Class 2A2
6.12% 11/25/13 2,844 2,717,611
Structured Asset Securities Corp.,
Series 98-C2A, Class B
6.94%** 01/25/01 2,755 2,754,977
Union Planters Mortgage
Finance Corp.,
Series 98-1, Class A1
6.35% 01/25/28 969 960,255
Washington Mutual,
Series 00-1, Class A1
6.91%** 06/25/24 2,782 2,774,156
Wilshire Funding Corp.,
Series 97, Class A1
7.25% 08/25/27 879 855,680
Par
Maturity (000) Value
--------- ------- ------------
COMMERCIAL MORTGAGE BACKED
SECURITIES (CONTINUED)
Wilshire Funding Corp.,
Series 98-2, Class A3
7.00% 12/28/37 $4,693 $ 4,549,735
------------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $45,485,058) 45,257,575
------------
PROJECT LOANS -- 0.8%
Federal Housing Authority,
INSD Project, Series 82
7.43%
(Cost $1,945,658) 09/01/22 1,935 1,892,784
------------
ASSET BACKED SECURITIES -- 31.5%
Amresco Independence Funding, Inc.,
Series 99-1, Class A
6.50% 06/15/20 2,717 2,711,554
Amresco Securitized Net Interest
Margin Trust, Series 96-1,
Class A
8.10% 04/26/26 167 109,983
Bank One, Series 00-2,
Class 4A
6.66%** 03/15/30 2,975 2,947,143
Captec Franchise Trust,
Series 99-1, Class A1
6.50% 05/25/05 3,644 3,584,214
Chevy Chase Auto Receivables Trust,
Series 97-3, Class A
6.20% 03/20/04 1,103 1,097,772
Fifth Third Auto Grantor Trust,
Series 96-B, Class A
6.45% 03/15/02 55 54,689
First Security Auto Owner Trust,
Series 00-1, Class A3
7.30% 07/15/04 1,825 1,840,398
FMAC Loan Receivables Trust,
Series 98-CA, Class A1
5.99% 11/15/04 1,942 1,889,387
Ford Credit Auto Owner Trust,
Series 00-A, Class A3
6.82% 06/17/02 4,280 4,279,096
Ford Credit Auto Owner Trust,
Series 99-B, Class A3
5.47% 09/15/01 24 24,039
Ford Credit Auto Owner Trust,
Series 99-B, Class A4
5.80% 06/15/02 125 124,258
Ford Credit Auto Owner Trust,
Series 99-D, Class A4
6.40% 10/15/02 3,100 3,090,459
MBNA Master Credit Card Trust,
Series 00-H, Class A
6.87%** 01/15/13 3,200 3,201,500
Mellon Auto Grantor Trust,
Series 00-1, Class A
7.18% 10/15/06 4,099 4,120,787
Missouri Higher Education
Loan Authority,
Series 97, Class P
6.80%** 07/25/08 2,551 2,524,904
See accompanying notes to financial statements.
13
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
LOW DURATION BOND PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
ASSET BACKED SECURITIES (CONTINUED)
Morgan Stanley Aircraft Finance,
Series 00-2, Class A5
7.20%** 03/15/25 $ 999 $ 999,953
Navistar Financial Corp Owner Trust,
Series 99-A, Class A3
5.95% 04/15/03 4,950 4,912,875
Newcourt Equipment Trust Securities,
Series 98-1, Class A3
5.24% 12/20/02 2,040 2,020,058
Newcourt Equipment Trust Securities,
Series 98-2, Class A3
5.45% 10/15/02 54 54,002
Nissan Auto Lease Trust,
Series 00-A, Class A3
7.80% 05/20/03 575 581,918
Nissan Auto Receivables Owner Trust,
Series 99-A, Class A3
6.47% 09/15/03 2,400 2,389,125
PBG Equipment Trust,
Series 00-1A, Class A
6.27% 01/20/12 1,997 1,944,351
Pegasus Aviation Lease Securitization,
Series 00-1, Class A1
7.24%** 03/25/15 3,017 3,007,910
PMC Capital Limited Partnership,
Series 98-1, Class A
6.75%** 04/01/21 3,665 3,664,782
PMC Capital Small Business
Administration Loan-Backed
Adjustable Rate Certificates,
Series 97-1, Class A
6.60%** 09/15/23 967 959,615
PMC Capital Small Business
Administration Loan-Backed
Adjustable Rate Certificates,
Series 97-1, Class B
6.95%** 09/15/23 514 514,393
Premier Auto Trust,
Series 98-3, Class A3
5.88% 12/08/01 531 530,351
Ryder Vehicle Lease Trust,
Series 98-A, Class A
6.10% 09/15/08 3,060 3,026,730
Ryder Vehicle Lease Trust,
Series 99-A, Class A3
6.68% 04/15/04 2,450 2,440,813
SWB Loan Backed Certificates,
Series 98-1, Class AV
7.25%** 09/15/24 2,519 2,503,083
The Money Store Small Business
Administration Loan Backed
Securities, Series 96-2, Class A
7.18%** 04/15/24 267 266,153
The Money Store Small Business
Administration Loan Backed
Securities, Series 97-1, Class A
7.25%** 01/15/25 606 608,397
7.40%** 04/15/28 2,615 2,611,067
The Money Store Small Business
Administration Loan Backed
Securities, Series 97-1, Class B
7.73%** 01/15/25 1,514 1,513,390
Par
Maturity (000) Value
--------- ------- ------------
ASSET BACKED SECURITIES (CONTINUED)
Toyota Auto Receivables Owner Trust,
Series 99-A, Class A3
6.15% 08/16/04 $8,071 $ 8,016,773
USAA Auto Loan Grantor Trust,
Series 99-1, Class A
6.10% 02/15/06 3,181 3,158,575
------------
TOTAL ASSET BACKED SECURITIES
(Cost $77,563,197) 77,324,497
------------
CORPORATE BONDS -- 14.4%
FINANCE -- 6.8%
Donaldson, Lufkin and Jenrette, Inc.
5.87% 04/01/02 3,050 2,999,851
Firstar Corp.
6.50% 07/15/02 2,760 2,738,919
Ford Motor Credit Co.
6.70% 07/16/04 3,190 3,127,539
Lehman Brothers Holdings, Inc.
Global Notes
6.62% 04/01/04 1,000 980,857
Morgan Stanley, Dean Witter & Co.
7.13% 01/15/03 2,165 2,178,891
Osprey Trust
8.31% 01/15/03 1,900 1,924,046
Popular North America, Inc.
6.87% 06/15/01 2,650 2,641,932
------------
16,592,035
------------
INDUSTRIAL -- 3.3%
International Paper Co.,
Series 144A
8.00% 07/08/03 2,800 2,857,271
Nabisco, Inc.
6.00% 02/15/11 1,720 1,704,170
US West Capital Funding, Inc.
6.87% 08/15/01 3,435 3,432,235
------------
7,993,676
------------
INSURANCE -- 0.7%
Metropolitan Life Insurance Co.
6.30% 11/01/03 1,720 1,681,487
------------
PIPELINES -- 1.0%
El Paso Energy Corp.
6.63% 07/15/01 2,440 2,423,137
------------
TELECOMMUNICATIONS -- 1.0%
AT&T Corp.
5.62% 03/15/04 1,325 1,267,086
Clear Channel Communications
6.50% 07/07/05 1,500 1,326,749
------------
2,593,835
------------
UTILITY -- 1.3%
Avon Energy Partners Holdings
6.73% 12/11/02 690 675,959
Limestone Electron Trust,
Sr. Notes, Series 144A
8.62% 03/15/03 1,500 1,527,278
TECO Energy, Inc.
7.00% 10/01/02 1,050 1,039,500
------------
3,242,737
------------
See accompanying notes to financial statements.
14
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
LOW DURATION BOND PORTFOLIO (CONTINUED)
Par/Shares
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
CORPORATE BONDS (CONTINUED)
YANKEE -- 0.3%
Banco Internacional S.A.
6.03% 01/16/01 $ 655 $ 654,719
Nordbanken
7.31%** 10/25/01 150 150,135
------------
804,854
------------
TOTAL CORPORATE BONDS
(Cost $35,359,294) 35,331,761
------------
FOREIGN BONDS -- 1.8%
Nykredit Corp.
8.00% 10/01/32 22,260 2,630,365
Unikredit Realkredit
8.00% 10/01/32 14,000 1,654,318
------------
TOTAL FOREIGN BONDS
(Cost $4,384,551) 4,284,683
------------
TAXABLE MUNICIPAL BONDS -- 0.2%
Philadelphia Authority Industrial
Development Tax Claim Collection
Revenue Bond, Series 97A
6.49%
(Cost $528,926) 06/15/04 529 486,692
------------
SHORT TERM INVESTMENTS -- 3.8%
Federal Home Loan Bank
Discount Notes
6.28% 10/02/00 7,100 7,098,761
Galileo Money Market Fund 2,232 2,232,380
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $9,331,141) 9,331,141
------------
REPURCHASE AGREEMENTS -- 2.6 %
Barclays Capital
(Agreement dated 09/18/00 to be
repurchased at $2,711,231.
Collateralized by $2,500,000 U.S.
Treasury Notes (CPI) 3.63% due 07/15/02.
The value of the collateral is
$2,709,685.)
6.35% 10/05/00 2,703 2,703,125
Barclays Capital
(Agreement dated 09/29/00 to be
repurchased at $805,141.
Collateralized by $780,000 U.S. Treasury
Notes 6.63% due 05/31/02. The value of
the collateral is $804,241.)
6.00% 10/12/00*** 803 803,400
Greenwich Capital Markets
(Agreement dated 09/28/00 to be
repurchased at $2,784,350.
Collateralized by $2,775,000 U.S.
Treasury Notes 5.75% due 08/15/03. The
value of the collateral is $2,780,367.)
6.35% 10/10/00*** 2,778 2,778,469
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $6,284,994) 6,284,994
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $336,187,939*) 137.0% 335,440,410
------------
Par
Maturity (000) Value
--------- ------- ------------
REVERSE REPURCHASE AGREEMENTS -- (34.8 %)
Barclays Capital
(Agreement dated 09/27/00 to be
repurchased at $206,262.
Collaterized by $200,000 U.S. Treasury
Notes 6.38% due 04/30/02. The value of
the collateral is $206,327.)
6.55% 10/04/00 $ 206 $ (206,150)
Barclays Capital
(Agreement dated 09/05/00 to be
repurchased at $2,711,483.
Collaterized by $2,500,000 U.S. Treasury
Notes (CPI) 3.63% due 07/15/02. The value
of the collateral is $2,707,637.)
6.50% 10/05/00 2,697 (2,709,535)
Barclays Capital
(Agreement dated 09/18/00 to be
repurchased at $16,620,737.
Collaterized by $16,385,000 U.S. Treasury
Notes 5.88-6.50% due 11/30/01 to
02/28/02. The value of the collateral is
$16,599,881.)
6.45% 10/10/00 16,555 (16,594,744)
Barclays Capital
(Agreement dated 09/18/00 to be
repurchased at $4,891,212.
Collaterized by $4,650,000 U.S. Treasury
Notes (CPI) 3.63% due 01/15/08. The value
of the collateral is $4,890,085.)
6.45% 10/18/00 4,865 (4,876,394)
Greenwich Capital Markets
(Agreement dated 09/28/00 to be
repurchased at $3,516,114.
Collaterized by $3,490,000 U.S. Treasury
Notes 6.13% due 08/31/02. The value of
the collateral is $3,515,281.)
6.30% 10/05/00 3,512 (3,513,656)
Greenwich Capital Markets
(Agreement dated 09/28/00 to be
repurchased at $1,894,828.
Collaterized by $1,835,000 U.S. Treasury
Notes 6.63% due 05/31/02. The value of
the collateral is $1,892,027.)
6.50% 10/12/00 1,890 (1,891,074)
Greenwich Capital Markets
(Agreement dated 09/28/00 to be
repurchased at $3,974,212.
Collaterized by $3,920,000 U.S. Treasury
Notes 6.50% due 02/28/02. The value of
the collateral is $3,975,647.)
6.50% 10/19/00 3,959 (3,961,344)
Lehman Brothers
(Agreement dated 09/19/00 to be
repurchased at $2,329,228.
Collateralized by $2,300,000 U.S.
Treasury Notes 6.50% due 2/28/02. The
value of the collateral is $2,332,650.)
6.42% 10/11/00 2,320 (2,325,090)
Lehman Brothers
(Agreement dated 09/13/00 to be
repurchased at $14,425,669.
Collateralized by $10,059,106 Federal
National Mortgage Association 5.50-7.00%
due 10/01/05 to 07/01/09 and $4,990,437
Government National Mortgage Association
7.50-8.25% due 09/15/08 to 04/15/13. The
value of the collateral is $15,034,841.)
6.58% 10/13/00 14,347 (14,394,202)
See accompanying notes to financial statements.
15
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
LOW DURATION BOND PORTFOLIO (CONCLUDED)
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
REVERSE REPURCHASE AGREEMENTS (CONTINUED)
Paribas Capital Markets
(Agreement dated 09/20/00 to be
repurchased at $515,131.
Collateralized by $500,000 U.S. Treasury
Notes 6.38% due 04/30/02. The value of
the collateral is $515,817.)
6.45% 10/05/00 $ 514 $ (514,763)
Salomon Smith Barney
(Agreement dated 09/26/00 to be
repurchased at $4,024,925.
Collateralized by $4,000,000 U.S.
Treasury Notes 6.13% due 08/31/02. The
value of the collateral is $4,028,976.)
6.30% 10/03/00 4,020 (4,022,814)
Salomon Smith Barney
(Agreement dated 09/06/00 to be
repurchased at $8,582,806.
Collateralized by $4,999,994 Federal
National Mortgage Association 8.14% due
02/01/24 and $3,609,441 Federal Home Loan
Mortgage Corp. 7.21% due 10/01/22. The
value of the collateral is $8,852,735.)
6.58% 10/06/00 8,536 (8,575,005)
Salomon Smith Barney
(Agreement dated 09/18/00 to be
repurchased at $2,182,757.
Collateralized by $2,150,000 U.S.
Treasury Notes 6.25% due 07/31/02. The
value of the collateral is $2,181,067.)
6.45% 10/10/00 2,174 (2,179,252)
Salomon Smith Barney
(Agreement dated 9/18/00 to be
repurchased at $2,782,456. Collateralized
by $2,775,000 U.S. Treasury Notes
5.75% due 08/15/03. The value of
the collateral is $2,781,227.)
6.45% 10/10/00 2,772 (2,777,986)
Salomon Smith Barney
(Agreement dated 09/26/00 to be
repurchased at $5,313,448.
Collateralized by $5,200,000 U.S.
Treasury Notes 6.38% due 06/30/02. The
value of the collateral is $5,312,305.)
6.38% 10/13/00 5,298 (5,302,191)
Salomon Smith Barney
(Agreement dated 09/13/00 to be
repurchased at $1,258,876. Collateralized
by $1,301,618 Federal Home
Loan Mortgage Corp. Gold
7.00% due 09/01/11. The value of
the collateral is $1,304,176.)
6.59% 10/13/00 1,252 (1,256,126)
Salomon Smith Barney
(Agreement dated 09/22/00 to be
repurchased at $1,032,651.
Collateralized by $1,000,000 U.S.
Treasury Notes 6.38% due 04/30/02. The
value of the collateral is $1,031,635.)
6.50% 10/13/00 1,029 (1,030,422)
Salomon Smith Barney
(Agreement dated 09/21/00 to be
repurchased at $9,053,125.
Collateralized by $9,035,000 U.S.
Treasury Notes 5.50% due 08/31/01. The
value of the collateral is $9,016,331.)
6.50% 10/23/00 9,001 (9,017,371)
------------
TOTAL REVERSE REPURCHASE
AGREEMENTS
(Cost $84,946,444) (85,148,119)
Value
------------
LIABILITIES IN EXCESS OF
OTHER ASSETS (2.2%) $ (5,400,247)
------ ------------
NET ASSETS (Applicable to 8,851,134
BlackRock shares, 12,913,478
Institutional shares, 2,010,569 Service
shares, 255,838 Investor A shares,
829,231 Investor B shares and 82,128
Investor C shares outstanding) 100.0% $244,892,044
====== ============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
BLACKROCK SHARE
($86,867,911 / 8,851,134) $ 9.81
======
NET ASSET VALUE AND REDEMPTION
PRICE PER INSTITUTIONAL, SERVICE
AND INVESTOR A SHARE
($149,075,157 / 15,179,885) $ 9.82
======
OFFERING PRICE PER INSTITUTIONAL
AND SERVICE SHARE $ 9.82
======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($9.82 / 0.970) $10.12
======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(SUBJECT TO A MAXIMUM CONTINGENT
DEFERRED SALES CHARGE OF 4.5%)
PER INVESTOR B SHARE
($8,142,465 / 829,231 ) $ 9.82
======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(SUBJECT TO A MAXIMUM CONTINGENT
DEFERRED SALES CHARGE OF 1.0%)
PER INVESTOR C SHARE
($806,511 / 82,128) $ 9.82
======
--------------------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 929,038
Gross unrealized depreciation (1,676,567)
-----------
$ (747,529)
===========
** Rates shown are the rates as of September 30, 2000.
*** Agreement has a putable option where principal and interest owed can be
recovered through demand in seven days.
+ Securities with a market value of $86,178,645 have been pledged as
collateral for reverse repurchase agreements.
++ Securities pledged as collateral with a value of $884,012 on 341 short U.S.
Treasury Notes futures contracts and 173 long U.S. Treasury Notes futures
contracts expiring December 2000. The value of such contracts on September
30, 2000 was $68,871,141, thereby resulting in an unrealized gain of
$79,433.
See accompanying notes to financial statements.
16
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 42.3%
Small Business Administration
Participation Certificates,
Series 96-20H, Class 1
7.25% 08/01/16 $4,429 $ 4,423,405
Small Business Administration
Participation Certificates,
Series 96-20J, Class 1
7.20% 10/01/16 4,034 4,018,124
Small Business Administration
Participation Certificates,
Series 98-20J, Class 1
5.50% 10/01/18 4,645 4,170,626
Small Business Investment Cos.
Pass-Through, Series
96-P10A, Class 1
6.67% 02/10/06 3,814 3,718,878
U.S. Treasury Bonds
12.75%+ 11/15/10 11,925 15,372,064
14.00%+ 11/15/11 12,640 17,676,244
9.25% 02/15/16 2,050 2,686,140
U.S. Treasury Notes
5.50%+ 08/31/01 24,600 24,430,875
6.50% 02/02-02/10 14,850 14,948,382
6.12% 08/02-08/07 16,800 16,876,815
5.75%+ 08/03-08/10 30,510 30,370,312
5.87%+ 11/15/04 28,580 28,562,625
6.75%+ 05/15/05 7,495 7,766,694
U.S. Treasury Notes (CPI)
3.62% 01/15/08 7,900 8,247,587
3.87% 01/15/09 1,700 1,774,611
------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $186,648,939) 185,043,382
------------
MORTGAGE PASS-THROUGHS -- 32.8%
Federal Home Loan Mortgage
Corp.
9.00% 06/01/01 0 179
7.00% 05/01/02 48 47,837
8.00% 11/08-06/17 1,728 1,771,559
6.50% 03/01/11 3,945 3,892,122
6.00% 05/15/16 846 837,442
8.27%** 12/01/26 2,478 2,525,750
Federal Home Loan Mortgage
Corp. Gold
6.50% 04/01/08 2,429 2,402,892
7.00% 09/01/11 4,122 4,105,044
9.00% 04/01/25 2,990 3,092,924
Federal National Mortgage
Association
8.14%** 10/01/00 6,507 6,682,264
6.20% 02/26/01 783 778,063
6.72% 02/26/01 4,602 4,577,968
8.50% 06/03-10/28 9,830 10,036,754
6.50% 08/03-05/15 31,079 30,476,691
6.12% 11/25/03 423 413,028
6.00% 11/03-02/29 10,265 9,842,208
6.09% 10/01/08 7,215 6,811,659
6.04% 02/25/09 4,500 4,180,185
7.00% 03/09-03/13 15,666 15,610,536
7.26% 01/25/11 6,205 6,235,771
5.50% 01/14-03/14 3,370 3,178,039
7.57% 11/01/18 2,438 2,415,234
Par
Maturity (000) Value
--------- ------- ------------
MORTGAGE PASS-THROUGHS (CONTINUED)
Federal National Mortgage
Association 10 Year Balloon
6.00% 02/01/04 $2,371 $ 2,310,527
Federal National Mortgage
Association Multi-Family
7.71% 12/01/18 4,157 4,240,536
Government National Mortgage
Association
7.25% 04/15/06 4,781 4,758,154
8.25% 11/08-02/09 3,524 3,610,058
7.00% 10/09-12/27 8,397 8,342,723
MLCC Mortgage Investors, Inc.,
Series 95-C2 (IO)
10.40%*** 06/15/21 12,630 371,020
MLCC Mortgage Investors, Inc.,
Series 95-C3, Class A1
6.77%** 10/02/00 138 137,256
------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $145,116,827) 143,684,423
------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 1.1%
Federal Home Loan Mortgage Corp.,
Series 1361, Class I
6.00% 09/15/07 1,130 1,093,884
Federal National Mortgage
Association Grantor Trust,
Series 96-T6, Class A
6.33% 10/25/00 3,586 3,569,292
------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $4,640,227) 4,663,176
------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 5.7%
Credit Suisse First Boston
Mortgage Securities Corp.,
Series 00-1, Class 4A
6.63% 03/15/15 2,878 2,759,672
General Motors Acceptance Corp.
Commercial Mortgage
Securities, Inc.,
Series 97-C1, Class X (IO)
8.26%*** 07/15/27 17,488 1,271,876
General Motors Acceptance Corp.
Commercial Mortgage
Securities, Inc.,
Series 97-C2, Class A3
6.56% 11/15/07 2,850 2,750,819
Morgan Stanley Capital
International, Inc.,
Series 97-HF1, Class A1
6.86% 07/15/29 3,129 3,118,272
Residential Funding Mortgage
Securities I, Inc.,
Series 98-S1, Class A1
6.50% 01/25/13 3,916 3,803,505
Salomon Brothers Mortgage
Securities VII,
Series 00-NL1, Class A1
6.60% 10/01/30 3,631 3,564,819
See accompanying notes to financial statements.
17
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
INTERMEDIATE GOVERNMENT BOND PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
COMMERCIAL MORTGAGE BACKED
SECURITIES (CONTINUED)
Structured Asset Mortgage
Investments, Inc.,
Series 98-9, Class 2A2
6.13% 11/25/13 $4,621 $ 4,416,117
Summit Mortgage Trust,
Series 00-1, Class B1
6.14% 12/28/12 2,757 2,621,164
Union Planters Mortgage
Finance Corp.,
Series 98-1, Class A1
6.35% 01/25/28 719 712,827
------------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $24,945,172) 25,019,071
------------
PROJECT LOANS -- 2.9%
Federal Housing Authority,
Merrill Lynch,
Series 29, Class 1A1
7.43% 06/01/22 7,859 7,688,213
Federal Housing Authority,
USGI, Series 56
7.46% 01/01/23 5,087 4,928,825
------------
TOTAL PROJECT LOANS
(Cost $13,239,452) 12,617,038
------------
ASSET BACKED SECURITIES -- 13.9%
ACLC Business Loan
Receivables Trust,
Series 98-1, Class A1
6.44% 09/15/19 7,909 7,593,014
Boston Edison Co.,
Series 99-1, Class A4
6.91% 09/15/09 4,475 4,470,677
Chevy Chase Auto
Receivables Trust,
Series 97-3, Class A
6.20% 03/20/04 958 952,750
Citibank Credit Card
Master Trust I,
Series 97-6, Class A (PO)
7.61%***++ 08/15/06 400 307,207
FMAC Loan Receivables Trust,
Series 97-C, Class A
6.75% 12/15/19 3,709 3,541,746
Green Tree Financial Corp.,
Series 97-5, Class A7
7.13% 05/15/29 3,501 3,163,274
Green Tree Financial Corp.,
Series 99-5, Class A3
6.97%++ 04/01/31 3,100 3,079,172
Huntington Auto Trust,
Series 00-A, Class A4
7.42% 07/15/05 8,200 8,310,187
MBNA Master Credit Card Trust,
Series 00-H, Class A
6.87%** 01/15/13 4,400 4,402,063
Mellon Auto Grantor Trust,
Series 00-1, Class A
7.18% 10/15/06 4,923 4,949,193
Nissan Auto Lease Trust,
Series 00-A, Class A3
7.80% 05/20/03 4,600 4,655,344
Par/Shares
Maturity (000) Value
--------- ------- ------------
ASSET BACKED SECURITIES (CONTINUED)
PMC Capital Small Business
Administration Loan-Backed
Adjustable Rate Certificates,
Series 97-1, Class A
6.60%** 09/15/23 $1,611 $ 1,599,358
Provident Auto Lease Trust,
Series 99-1, Class A2
7.03% 11/14/05 3,000 2,992,500
Saxon Asset Securities Trust,
Series 00-2, Class AF3
8.05% 06/25/15 3,725 3,714,523
SWB Loan Backed Certificates,
Series 99-1, Class A
7.38% 05/15/25 1,928 1,850,613
The Money Store Small Business
Administration Loan Trust,
Series 99-1, Class A
7.17%** 07/15/25 2,888 2,888,377
USAA Auto Loan Grantor Trust,
Series 99-1, Class A
6.10% 02/15/06 2,266 2,249,944
------------
TOTAL ASSET BACKED SECURITIES
(Cost $61,407,090) 60,719,942
------------
TAXABLE MUNICIPAL BONDS -- 1.3%
New Jersey Economic Development
Authority Pension Funding Zero
Coupon Revenue Bond,
Series 97, Class B
6.62%*** 02/15/02 1,527 1,397,205
Stanislaus County, California
Taxable Pension Obligation
Refunding Revenue Bond,
Series 95
7.15% 08/15/13 4,445 4,389,438
------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $5,841,627) 5,786,643
------------
SHORT TERM INVESTMENTS -- 0.0%
Galileo Money Market Fund
(Cost $247,699) 248 247,699
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $442,087,033*) 100.0% $437,781,374
============
REVERSE REPURCHASE AGREEMENTS -- (13.1%)
Barclays Capital
(Agreement dated 09/29/00 to be
repurchased at $602,571.
Collateralized by $600,000 U.S. Treasury
Notes 5.75% due 08/15/10. The value of
the collateral is $606,267.)
6.40% 10/02/00 602 (602,464)
Barclays Capital
(Agreement dated 09/21/00 to be
repurchased at $5,803,030.
Collaterized by $4,000,000 U.S. Treasury
Bonds 14.00% due 11/15/11. The value of
the collateral is $5,806,791.)
6.44% 10/23/00 5,770 (5,780,322)
See accompanying notes to financial statements.
18
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
INTERMEDIATE GOVERNMENT BOND PORTFOLIO (CONCLUDED)
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- -------------
REVERSE REPURCHASE AGREEMENTS (CONTINUED)
Greenwich Capital Markets
(Agreement dated 09/28/00 to be
repurchased at $4,362,730.
Collaterized by $3,000,000 U.S. Treasury
Bonds 14.00% due 11/15/11. The value of
the collateral is $4,355,094.)
6.50% 10/19/00 $4,346 $ (4,348,604)
Lehman Brothers
(Agreement dated 09/19/00 to be
repurchased at $6,136,313.
Collateralized by $6,000,000 U.S.
Treasury Notes 5.88% due 11/15/04. The
value of the collateral is $6,130,352.)
6.38% 10/11/00 6,113 (6,125,489)
Salomon Smith Barney
(Agreement dated 09/19/00 to be
repurchased at $5,306,469.
Collateralized by $5,000,000 U.S.
Treasury Notes 6.75% due 05/15/05. The
value of the collateral is $5,310,054.)
6.15% 10/10/00 5,288 (5,298,340)
Salomon Smith Barney
(Agreement dated 09/18/00 to be
repurchased at $10,641,782.
Collateralized by $8,000,000 U.S.
Treasury Notes 12.75% due 11/15/10.
The value of the collateral is
$10,700,539.)
6.45% 10/10/00 10,600 (10,624,689)
Salomon Smith Barney
(Agreement dated 09/11/00 to be
repurchased at $24,576,630.
Collateralized by $24,600,000 U.S.
Treasury Notes 5.50% due 08/31/01. The
value of the collateral is
$24,549,170.)
6.40% 10/11/00 24,446 (24,533,170)
-------------
TOTAL REVERSE REPURCHASE
AGREEMENTS
(Cost $57,164,750) $ (57,313,078)
=============
--------------------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 1,604,766
Gross unrealized depreciation (5,910,425)
-----------
$(4,305,659)
===========
** Rates shown are the rates as of September 30, 2000.
*** Rates shown are the effective yields as of September 30, 2000.
+ Securities with a market value of $57,458,267 have been pledged as
collateral for reverse repurchase agreements.
++ Securities pledged as collateral with a value of $396,500 on 37 short U.S.
Treasury Bonds futures contracts, 330 short U.S. Treasury Notes futures
contracts and 15 long U.S. Treasury Notes futures contracts expiring
December 2000. The value of such contracts on September 30, 2000 was
$39,740,203, thereby resulting in an unrealized gain of $12,085.
See accompanying notes to financial statements.
19
<PAGE>
BLACKROCK FUNDS
STATEMENT OF ASSETS AND LIABILITIES
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
SEPTEMBER 30, 2000
ASSETS
Investments at value (Cost $442,087,033) ............... $437,781,374
Collateral received for securities loaned .............. 49,906,738
Interest receivable .................................... 4,509,959
Interest receivable on interest rate swaps ............. 3,492
Principal receivable ................................... 128,757
Investments sold receivable ............................ 2,443,104
Capital shares sold receivable ......................... 2,341,796
Prepaid expenses ....................................... 4,273
Unrealized appreciation on interest rate swaps ......... 77,998
------------
TOTAL ASSETS .................................... 497,197,491
------------
LIABILITIES
Payable upon return of securities loaned ............... 49,906,738
Reverse repurchase agreements payable .................. 57,313,078
Investments purchased payable .......................... 25,707,665
Capital shares redeemed payable ........................ 91,186
Distributions payable .................................. 1,771,160
Advisory fees payable .................................. 80,511
Administrative fees payable ............................ 68,331
Transfer agent fees payable ............................ 12,266
Other accrued expenses payable ......................... 46,095
Futures margin payable ................................. 36,656
Unrealized depreciation on interest rate swaps ......... 70,620
------------
TOTAL LIABILITIES ............................... 135,104,306
------------
NET ASSETS (Applicable to 32,858,228 Institutional
shares, 2,556,482 Service shares, 934,292
Investor A shares, 141,048 Investor B shares
and 60,361 Investor C shares outstanding) .............. $362,093,185
============
NET ASSET VALUE AND REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND INVESTOR A SHARE
($360,097,864 / 36,349,002) ............................ $ 9.91
======
OFFERING PRICE PER INSTITUTIONAL AND SERVICE SHARE ........ $ 9.91
======
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE ($9.91 / 0.960) $10.32
======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($1,397,418 / 141,048) ............ $ 9.91
======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($597,903 / 60,361) ............... $ 9.91
======
See accompanying notes to financial statements.
20
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
INTERMEDIATE BOND PORTFOLIO
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 16.2%
Small Business Administration
Participation Certificates,
Series 92-20H, Class 1
7.40% 08/01/12 $ 2,969 $ 2,980,920
Small Business Administration
Participation Certificates,
Series 96-20H, Class 1
7.25% 08/01/16 5,051 5,044,233
Small Business Investment Cos.
Pass-Through,
Series 96-P10A, Class 1
6.67% 02/10/06 2,843 2,771,835
Small Business Investment Cos.
Pass-Through,
Series 97-P10D, Class 1
6.51% 11/01/07 714 687,375
Small Business Investment Cos.
Pass-Through,
Series 98-10A, Class 1
6.12% 02/01/08 791 744,963
U.S. Treasury Bonds
6.12% 08/31/02 2,000 2,003,964
12.75%+ 11/15/10 9,400 12,117,183
14.00% 11/15/11 335 468,476
12.50% 08/15/14 635 909,637
9.25%+ 02/15/16 8,700 11,399,714
U.S. Treasury Notes
6.50% 02/28/02 15,000 15,075,000
6.62% 05/31/02 890 897,787
6.25% 07/31/02 3,425 3,437,844
6.12%+ 08/15/07 18,200 18,399,072
5.75%+ 08/15/10 32,700 32,577,375
U.S. Treasury Notes (CPI)
3.62%+ 01/15/08 14,000 14,615,977
3.87%+ 01/15/09 3,400 3,549,222
------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $127,769,296) 127,680,577
------------
MORTGAGE PASS-THROUGHS -- 21.1%
Federal Home Loan
Mortgage Corp.
9.00% 12/01-12/16 39 40,065
9.50% 01/01/05 39 39,361
8.50% 07/01/06 12 12,078
7.25% 12/01/06 263 260,861
7.50% 02/01/07 9 9,328
8.00% 07/08-09/18 3,940 3,999,252
6.50%+ 03/01/11 4,637 4,574,246
6.00%+ 04/01/11 2,566 2,474,153
8.25% 11/01/15 839 849,355
7.86%** 12/01/23 6,460 6,551,054
Federal Home Loan Mortgage
Corp. 30 Year Balloon
6.96%** 07/01/27 150 150,804
Federal Home Loan Mortgage
Corp. Gold
6.50% 04/08-07/29 3,653 3,599,949
7.00%+ 01/09-09/11 7,659 7,628,122
6.00% 04/11-05/14 1,200 1,157,226
Par
Maturity (000) Value
--------- ------- ------------
MORTGAGE PASS-THROUGHS (CONTINUED)
Federal National Mortgage
Association
6.20% 02/26/01 $ 4,818 $ 4,785,085
6.50% 05/03-02/30 10,076 9,829,237
6.00% 01/04-05/29 23,034 22,180,618
9.50% 03/01/05 5 5,110
7.00% 10/07-05/11 18,844 18,789,621
8.00%+ 03/08-11/13 5,103 5,159,108
7.50% 07/08-10/14 2,924 2,934,591
5.50%+ 02/09-03/14 8,487 8,049,883
6.04% 02/25/09 5,600 5,202,008
8.50% 08/09-10/28 14,653 14,968,290
7.26% 01/25/11 3,250 3,266,187
6.55%** 01/25/22 3,683 3,283,217
7.80%** 02/01/24 11,840 12,158,009
Federal National Mortgage
Association 10 Year Balloon
6.00% 02/01/04 1,819 1,772,805
Government National Mortgage
Association
7.25% 04/15/06 853 849,228
8.25% 08/08-02/09 5,050 5,102,540
7.00% 10/09-10/23 13,241 13,166,929
9.50% 05/16-02/17 7,204 212,088
8.50% 02/17-03/17 1,269 1,305,563
MLCC Mortgage Investors, Inc.,
Series 95-C1, Class C
7.51%** 05/25/15 2,022 2,017,481
MLCC Mortgage Investors, Inc.,
Series 95-C2 (IO)
10.40%*** 06/15/21 20,311 596,630
------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $167,007,929) 166,980,082
------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 2.2%
Federal Home Loan Mortgage Corp.,
Series 1361, Class I
6.00% 09/15/07 2,098 2,031,499
Federal Home Loan Mortgage Corp.,
Series 96T-2, Class A
7.00% 01/25/21 2,763 2,715,818
Federal National Mortgage
Association Grantor Trust,
Series 96-T6, Class A
6.33% 10/25/00 2,226 2,215,824
Federal National Mortgage Association,
Series 89-16, Class B (PO)
6.20%*** 03/25/19 845 650,396
Federal National Mortgage Association,
Series 99-55, Class PA
7.00% 06/18/13 2,743 2,752,243
Federal National Mortgage
Association Strip Notes,
Series 279, Class 1 (PO)
6.00%*** 07/01/26 302 239,325
Residential Asset Securitization Trust,
Series 98-A4, Class 1A1
6.75% 05/25/28 6,773 6,698,724
------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $17,212,931) 17,303,829
------------
See accompanying notes to financial statements.
21
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
INTERMEDIATE BOND PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 9.4%
Asset Securitization Corp.,
Series 97-D5, Class A1A
6.50% 02/14/41 $ 6,548 $ 6,461,016
Bayview Financial Acquisition Trust,
Series 98-1, Class AI
7.01% 05/25/29 2,948 2,866,806
Bosque Asset Corp.,
Series 97-1, Class A1
7.66% 06/05/02 610 591,330
Credit Suisse First Boston
Mortgage Securities Corp.,
Series 00-1, Class 4A
6.63% 03/15/15 5,912 5,668,638
Credit Suisse First Boston
Mortgage Securities Corp.,
Series 95-WF1, Class A2
6.65% 12/21/27 1,763 1,752,512
Deutsche Mortgage and Asset
Receiving Corp.,
Series 98-C1, Class A1
6.22% 09/15/07 2,481 2,421,188
General Motors Acceptance Corp.
Commercial Mortgage Securities, Inc.,
Series 97-C1, Class X (IO)
8.26%*** 07/15/27 26,177 1,903,869
General Motors Acceptance Corp.
Commercial Mortgage Securities, Inc.,
Series 97-C2, Class A3
6.57% 11/15/07 4,325 4,174,488
Housing Securities, Inc.,
Series 93-G, Class G4A
6.63% 01/25/09 4,000 3,972,021
Merit Securities Corp.,
Series 98-11, Class 2A2
6.92%** 11/28/22 4,180 4,173,017
Morgan Stanley Capital International, Inc.,
Series 97-HF1, Class A1
6.86% 07/15/29 3,537 3,525,003
Nationslink Funding Corp.,
Series 99-SL, Class A6
6.61% 04/10/07 2,100 2,051,663
NYC Mortgage Loan Trust,
Series 96, Class A1
6.75% 06/25/06 3,451 3,403,107
Residential Funding Mortgage
Securities I, Inc.,
Series 98-S1, Class A1
6.50% 01/25/13 6,811 6,614,791
Salomon Brothers Mortgage
Securities VII,
Series 00-NL1, Class A1
6.60% 10/01/30 6,228 6,114,400
Structured Asset Mortgage
Investments, Inc.,
Series 98-9, Class 2A2
6.13% 11/25/13 6,826 6,523,029
Structured Asset Securities Corp.,
Series 98-C2A, Class B
6.94%** 01/25/13 2,967 2,966,899
Structured Asset Securities Corp.,
Series 99-C3, Class A
7.02%** 11/20/01 2,402 2,404,020
Summit Mortgage Trust,
Series 00-1, Class B1
6.14% 12/28/12 5,515 5,243,323
Par
Maturity (000) Value
--------- ------- ------------
COMMERCIAL MORTGAGE BACKED
SECURITIES (CONTINUED)
Union Planters Mortgage Finance Corp.,
Series 98-1, Class A1
6.35% 01/25/28 $ 1,730 $ 1,714,320
------------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $74,617,653) 74,545,440
------------
PROJECT LOANS -- 0.6%
Federal Housing Authority, USGI,
Series 56
7.46%
(Cost $5,070,771) 01/01/23 5,003 4,847,977
------------
ASSET BACKED SECURITIES -- 15.3%
ACLC Business Loan Receivables Trust,
Series 98-1, Class A1
6.44% 09/15/19 3,663 3,516,764
Amresco Securitized Net Interest
Margin Trust, Series 96-1, Class A
8.10% 04/26/26 804 456,538
Auto Leasing Investors, Series 97, Class A6
6.18% 08/12/05 3,975 3,864,445
Boston Edison Co., Series 99-1, Class A4
6.91% 09/15/09 5,500 5,494,687
Chevy Chase Auto Receivables Trust,
Series 97-1, Class A
6.50% 10/15/03 1,642 1,639,966
Chevy Chase Auto Receivables Trust,
Series 97-3, Class A
6.20% 03/20/04 976 971,107
FMAC Loan Receivables Trust,
Series 97-C, Class A
6.75% 12/15/19 6,305 6,020,968
FMAC Loan Receivables Trust,
Series 98-CA, Class A1
5.99% 11/15/04 4,402 4,282,566
General Motors Acceptance Corp.,
Series 97
7.43% 02/21/21 951 930,331
Green Tree Financial Corp.,
Series 94-B, Class A
7.85% 07/15/04 612 593,361
Green Tree Financial Corp.,
Series 96-7, Class A6
7.65% 10/15/27 3,294 3,307,072
Green Tree Financial Corp.,
Series 99-5, Class A3
6.97%++ 04/01/31 5,265 5,229,626
Huntington Auto Trust,
Series 00-A, Class A4
7.42% 07/15/05 7,100 7,195,406
IFC Small Business Administration
Loan-Backed Adjustable Rate Certificates,
Series 97-1, Class A
7.00%** 01/15/24 2,145 2,128,740
MBNA Master Credit Card Trust,
Series 00-H, Class A
6.87%** 01/15/13 8,100 8,103,797
Mellon Auto Grantor Trust,
Series 00-1, Class A
7.18% 10/15/06 8,473 8,517,710
See accompanying notes to financial statements.
22
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
INTERMEDIATE BOND PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
ASSET BACKED SECURITIES (CONTINUED)
Morgan Stanley Aircraft Finance,
Series 00-2, Class A5
7.20%** 03/15/25 $ 2,002 $ 2,004,472
Nissan Auto Lease Trust,
Series 00-A, Class A3
7.80% 05/20/03 7,500 7,590,234
Nissan Auto Receivables
Owner Trust,
Series 99-A, Class A3
6.47% 09/15/03 2,500 2,488,672
PBG Equipment Trust,
Series 00-1A, Class A
6.27% 01/20/12 8,176 7,958,875
Pegasus Aviation Lease Securitization,
Series 00-1, Class A1
7.24%** 03/25/15 6,263 6,243,839
PMC Capital Limited Partnership,
Series 98-1, Class A
6.75%** 04/01/21 2,155 2,154,540
PMC Capital Small Business
Administration Loan-Backed
Adjustable Rate Certificates,
Series 97-1, Class A
6.60%** 09/15/23 2,644 2,624,468
Provident Auto Lease Trust,
Series 99-1, Class A2
7.03% 11/14/05 4,575 4,563,562
Puget Power Conservation
Grantor Trust,
Series 97-1, Class A
6.23% 07/11/02 1,209 1,204,947
Ryder Vehicle Lease Trust,
Series 98-A, Class A
6.10% 09/15/08 565 558,735
Saxon Asset Securities Trust,
Series 00-2, Class AF3
8.05% 06/25/15 6,800 6,780,875
SWB Loan Backed Certificates,
Series 99-1, Class A
7.38% 05/15/25 2,508 2,408,026
The Money Store Small Business
Administration Loan Trust,
Series 96-1, Class A
7.45%** 07/15/21 1,860 1,857,565
The Money Store Small Business
Administration Loan Trust,
Series 99-1, Class A
7.17%** 07/15/25 3,589 3,588,589
USAA Auto Loan Grantor Trust,
Series 99-1, Class A
6.10% 02/15/06 6,276 6,230,613
------------
TOTAL ASSET BACKED SECURITIES
(Cost $121,449,858) 120,511,096
------------
CORPORATE BONDS -- 33.2%
ENTERTAINMENT -- 0.2%
MGM Mirage
8.50% 09/15/10 1,550 1,550,899
------------
FINANCE -- 15.1%
AIG Sunamerica Co.
7.60% 06/15/05 4,300 4,417,094
American General Financial Corp.
8.12% 08/15/09 2,250 2,321,343
Par
Maturity (000) Value
--------- ------- ------------
CORPORATE BONDS (CONTINUED)
FINANCE (CONTINUED)
Bank of America Corp.
7.80% 02/15/10 $ 3,250 $ 3,350,496
Bank One Corp.
7.62% 08/01/05 7,200 7,354,634
Barclays Bank
8.55%** 06/15/01 2,950 2,974,751
Bear Stearns Capital
Trust Investments
7.00% 01/15/27 5,100 5,071,313
Block Financial Corp.
8.50% 04/15/07 2,240 2,343,808
Chrysler Financial Co.
5.25% 10/22/01 4,130 4,055,949
Citicorp, Inc.
6.37% 11/15/08 1,710 1,615,240
Crestar Financial Corp.
8.25% 07/15/02 3,200 3,269,782
Dana Credit Corp.
8.37% 08/15/07 2,500 2,472,266
Equitable Life Surplus
6.95% 12/01/05 1,750 1,715,752
ERAC USA Finance Co.
6.95% 03/01/04 1,375 1,347,528
8.25% 05/01/05 2,380 2,425,024
Firstar Corp.
6.50% 07/15/02 2,480 2,461,058
Fleetboston Financial Corp.
7.25% 09/15/05 2,950 2,967,055
Ford Motor Credit Co.
6.70% 07/16/04 7,960 7,803,642
7.60% 08/01/05 7,450 7,511,871
7.37% 10/28/09 2,900 2,843,102
General Electric Capital Corp.
7.37% 01/19/10 2,000 2,051,184
Goldman Sachs Group
6.65% 05/15/09 5,000 4,716,647
Household Finance Corp.
6.00% 05/01/04 6,000 5,780,232
J.P. Morgan & Co., Inc.
8.10%** 02/15/12 3,700 3,212,063
KeyBank N.A.
5.80% 04/01/04 2,200 2,115,282
Lehman Brothers Holdings, Inc.
6.62% 04/01/04 2,500 2,452,143
Morgan Stanley, Dean
Witter & Co.
5.63% 01/20/04 4,265 4,095,381
Newcourt Credit Group
7.13% 12/17/03 5,035 5,041,546
Osprey Trust
8.31% 01/15/03 4,450 4,450,000
Popular North America, Inc.
6.88% 06/15/01 4,950 4,934,930
Qwest Capital Funding
7.75% 08/15/06 5,330 5,416,613
U.S. Bancorp
6.00% 05/15/04 3,000 2,893,329
6.50% 06/15/04 4,180 4,096,320
------------
119,577,378
------------
INDUSTRIAL -- 5.6%
Atlantic Richfield
10.88% 07/15/05 2,960 3,459,891
Cox Enterprises, Inc.
6.63% 06/14/02 2,820 2,789,318
See accompanying notes to financial statements.
23
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
INTERMEDIATE BOND PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
CORPORATE BONDS (CONTINUED)
INDUSTRIAL (CONTINUED)
DaimlerChrysler North America Holdings
6.90% 09/01/04 $ 620 $ 617,675
Federated Department Stores
6.12%** 03/01/01 3,230 3,183,889
International Paper Co.,
Series 144A
8.00% 07/08/03 6,850 6,990,110
Litton Industries, Inc.
6.05% 04/15/03 4,100 4,002,162
Lockheed Martin Corp.
7.95% 12/01/05 720 736,678
Monsanto Co.
5.75% 12/01/05 4,125 3,933,881
NRG Energy, Inc.
8.25% 09/15/10 3,000 2,988,885
Shopping Center Associates
6.75% 01/15/04 2,250 2,172,151
Tyco Intl. Group Corp., S.A.
5.88% 11/01/04 5,865 5,606,612
Union Carbide Corp.
6.75% 04/01/03 2,100 2,089,206
Williams Holdings of Delaware
6.13% 12/01/03 5,650 5,464,446
------------
44,034,904
------------
INSURANCE -- 1.0%
Allstate Corp.
7.20% 12/01/09 1,690 1,647,040
Everest Reinsurance Holdings
8.50% 03/15/05 2,710 2,790,510
Metropolitan Life Insurance Co.
6.30% 11/01/03 3,265 3,191,893
------------
7,629,443
------------
PIPELINES -- 1.3%
Conoco, Inc.
5.90% 04/15/04 2,650 2,567,270
El Paso Energy Corp.
6.63% 07/15/01 4,720 4,687,380
6.75% 05/15/09 2,850 2,713,813
------------
9,968,463
------------
TELECOMMUNICATIONS -- 2.7%
AT&T Corp.
5.62% 03/15/04 3,775 3,609,999
Cable and Wireless Optus Finance
8.00% 06/22/10 2,750 2,770,749
Deutsche Telekom International Finance
7.75% 06/15/05 5,125 5,176,250
Koninklijke KPN NV
7.50% 10/01/05 2,750 2,760,175
Sprint Capital Corp.
5.87% 05/01/04 3,650 3,500,500
Telefonica Europe BV
7.35% 09/15/05 3,950 3,950,000
------------
21,767,673
------------
TRANSPORTATION -- 0.6%
Burlington North Santa Fe Corp.
7.87% 04/15/07 4,500 4,635,074
------------
Par
Maturity (000) Value
--------- ------- ------------
CORPORATE BONDS (CONTINUED)
UTILITY -- 2.3%
Calpine Corp.
8.25% 08/15/05 $ 1,860 $ 1,862,325
Carolina Power & Light
7.50% 04/01/05 2,850 2,892,750
Dominion Resoures, Inc.
8.12% 06/15/10 2,075 2,148,123
Limestone Electron Trust,
Sr. Notes, Series 144A
8.62% 03/15/03 3,500 3,563,649
National Rural Utilities
5.00% 10/01/02 4,620 4,484,495
TXU Eastern Funding Co.
6.15% 05/15/02 3,810 3,725,058
------------
18,676,400
------------
YANKEE -- 4.4%
Asian Development Bank
6.37% 10/01/04 1,470 1,455,016
Canada Mortgage & Housing
7.20% 02/01/05 4,775 4,832,625
Den Danske Bank
6.38%** 06/15/08 5,600 5,349,568
Japan Bank for International
Cooperation
7.12% 06/20/05 1,970 1,977,388
Nordbanken
7.31%** 10/25/01 4,950 4,954,455
Swedbank
7.50%** 09/29/49 2,200 1,991,000
United Mexican States
8.50% 02/01/06 4,400 4,380,200
10.37% 02/17/09 4,850 5,288,925
Yorkshire Power Finance
6.15% 02/25/03 5,100 4,905,639
------------
35,134,816
------------
TOTAL CORPORATE BONDS
(Cost $263,536,461) 262,975,050
------------
TAXABLE MUNICIPAL BONDS -- 1.8%
New Jersey Economic Development
Authority State Pension Funding
Zero Coupon Revenue Bond,
Series 97-B
6.94%*** 02/15/05 2,900 2,156,005
New York State Power Authority and
General Purpose Revenue Bond,
Series 98-B
6.11%** 11/15/00 5,600 5,532,800
Philadelphia Authority Industrial
Development Tax Claim
Collection Revenue Bond,
Series 97-A
6.48% 06/15/04 6,745 6,205,319
------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $14,498,310) 13,894,124
------------
See accompanying notes to financial statements.
24
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
INTERMEDIATE BOND PORTFOLIO (CONCLUDED)
Par/Shares
Maturity (000) Value
-------- --------- ------------
SHORT TERM INVESTMENTS -- 0.2%
Federal Home Loan Bank
Discount Notes
6.28% 10/02/00 $ 900 $ 899,843
Galileo Money Market Fund 276 275,834
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $1,175,677) 1,175,677
------------
TOTAL INVESTMENTS IN
SECURITIES -- 100.0%
(Cost $792,288,886*) $789,913,852
============
------------------------
* Cost for Federal income tax purposes is $792,745,582. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 4,665,082
Gross unrealized depreciation (7,496,812)
-----------
$(2,831,730)
===========
** Rates shown are the rates as of September 30, 2000.
*** Rates shown are the effective yields as of September 30, 2000.
+ Securities with a market value of $62,669,397 have been pledged as
collateral for reverse repurchase agreements.
++ Securities pledged as collateral with a value of $594,750 on 68 long U.S.
Treasury Notes futures contracts, 35 short U.S. Treasury Bond futures
contracts and 222 short U.S. Treasury Notes futures contracts expiring
December 2000. The value of such contracts on September 30, 2000 was
$38,557,375, thereby resulting in an unrealized loss of $7,037.
See accompanying notes to financial statements.
25
<PAGE>
BLACKROCK FUNDS
STATEMENT OF ASSETS AND LIABILITIES
INTERMEDIATE BOND PORTFOLIO
SEPTEMBER 30, 2000
ASSETS
Investments at value (Cost $792,288,886) ............... $789,913,852
Collateral received for securities loaned .............. 7,385,386
Interest receivable .................................... 8,306,528
Interest receivable on interest rate swaps ............. 4,821
Principal receivable ................................... 89,412
Investments sold receivable ............................ 42,395,909
Capital shares sold receivable ......................... 585,526
Prepaid expenses ....................................... 11,878
Unrealized appreciation on interest rate swaps ......... 144,826
------------
TOTAL ASSETS .................................... 848,838,138
------------
LIABILITIES
Payable upon return of securities loaned ............... 7,385,386
Reverse repurchase agreements payable .................. 62,024,770
Investments purchased payable .......................... 76,119,586
Capital shares redeemed payable ........................ 48,048
Distributions payable .................................. 3,612,973
Advisory fees payable .................................. 150,399
Administrative fees payable ............................ 112,572
Transfer agent fees payable ............................ 7,931
Other accrued expenses payable ......................... 86,534
Futures margin payable ................................. 23,094
Unrealized depreciation on interest rate swaps ......... 129,512
------------
TOTAL LIABILITIES ............................... 149,700,805
------------
NET ASSETS (Applicable to 16,699,416 BlackRock shares,
56,599,164 Institutional shares, 2,765,907 Service
shares, 372,524 Investor A shares, 117,358 Investor B
shares and 51,994 Investor C shares outstanding) ....... $699,137,333
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
BLACKROCK, INSTITUTIONAL AND SERVICE SHARE
($694,192,983 / 76,064,487) ............................ $9.13
=====
NET ASSET VALUE AND REDEMPTION PRICE PER
INVESTOR A SHARE ($3,398,102 / 372,524) ................ $9.12
=====
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($9.12 / 0.960) ........................................ $9.50
=====
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($1,071,263 / 117,358) ............ $9.13
=====
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($474,985 / 51,994) ............... $9.14
=====
See accompanying notes to financial statements.
26
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
CORE BOND PORTFOLIO
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 22.8%
Overseas Private Investment Co.
5.92% 12/16/06 $1,803 $ 1,723,727
6.38% 12/16/06 1,674 1,621,744
6.46% 12/16/06 181 175,465
6.53% 12/16/06 437 425,162
6.66% 12/16/06 795 764,238
6.87% 12/16/06 865 840,520
7.01% 12/16/06 566 553,580
7.42% 12/16/06 1,287 1,285,980
6.27% 12/06-05/12 2,901 2,799,057
5.46% 05/29/12 320 293,107
5.79% 05/29/12 289 264,450
5.88% 05/29/12 382 356,414
6.81% 05/29/12 410 389,772
6.84% 05/29/12 533 522,301
6.89% 05/29/12 3,256 3,118,635
6.91% 05/29/12 1,093 1,048,646
7.35% 05/29/12 288 286,214
Small Business Administration
Participation Certificates,
Series 92-20H, Class 1
7.40% 08/01/12 178 178,855
Small Business Administration
Participation Certificates,
Series 96-20J, Class 1
7.20% 10/01/16 1,167 1,162,691
Small Business Administration
Participation Certificates,
Series 97-20B, Class 1
7.10% 02/01/17 2,810 2,782,266
Small Business Investment Cos.
Pass-Through, Series 97-P10C, Class 1
6.85% 08/01/07 5,345 5,237,608
Small Business Investment Cos.
Pass-Through,
Series 97-P10D, Class 1
6.51% 11/10/07 666 641,550
Small Business Investment Cos.
Pass-Through,
Series 98-10A, Class 1
6.12% 02/01/08 736 693,450
U.S. Treasury Bonds
12.75% 11/15/10 5,840 7,528,122
12.00% 08/15/13 12,000 16,357,500
8.50% 02/15/20 56,220 71,223,712
6.12% 08/15/29 12,495 12,764,430
6.25% 05/15/30 5,450 5,731,018
U.S. Treasury Bonds (CPI)
3.62% 04/15/28 14,910 15,125,449
3.87%+ 04/15/29 29,150 30,413,886
U.S. Treasury Notes
6.62% 05/31/02 2,300 2,320,125
6.12%+ 08/31/02 44,500 44,583,437
6.75% 05/15/05 23,000 23,833,750
5.75% 08/15/10 45,800 45,628,250
6.87% 08/15/25 13,780 15,170,926
U.S. Treasury Notes (CPI)
3.62% 01/15/08 7,400 7,725,588
3.87% 01/15/09 7,100 7,411,611
4.25% 01/15/10 7,000 7,338,248
------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $339,435,150) 340,321,484
------------
Par
Maturity (000) Value
--------- ------- ------------
MORTGAGE PASS-THROUGHS -- 34.8%
Federal Home Loan Mortgage
Corp. Gold
7.50% 09/05-05/30 $ 3,959 $ 3,981,446
5.50% 03/11-01/14 31,690 29,957,296
6.00% 04/11-06/29 54,602 51,841,061
8.00% 11/15-05/30 12,964 13,162,662
9.00% 12/01/22 14,389 14,883,196
7.00% 03/01/25 481 472,438
6.50% 11/28-06/30 96,697 93,010,863
Federal National Mortgage
Association
6.50% 06/08-12/29 23,426 22,969,719
5.50% 02/09-12/14 80,991 76,475,615
8.00% 10/09-05/22 79 80,138
6.00% 02/13-05/29 83,754 80,124,662
7.50% 09/01/22 143 142,972
7.00% 02/24-10/25 3,600 3,530,640
8.50% 10/01/28 14,585 14,940,174
Government National Mortgage
Association
8.50% 01/10-04/17 147 150,829
7.00% 03/13-09/28 21,347 21,109,633
6.00% 11/15/14 7,866 7,610,180
9.00% 07/15/18 21 21,517
7.50% 05/23-06/27 354 354,883
6.50% 12/23-07/29 32,341 31,188,799
8.00% 06/25-08/30 27,363 27,876,175
Government National Mortgage
Association II
6.00%** 01/20/30 9,784 9,666,226
6.50%** 05/20/30 11,304 11,240,411
MLCC Mortgage Investors, Inc.,
Series 95-C3, Class A1
6.77%** 10/01/00 94 93,334
MLCC Mortgage Investors, Inc.,
Series 95-C2 (IO)
10.40%*** 06/15/21 32,792 963,252
MLCC Mortgage Investors, Inc.,
Series 96-C1, Class A3
7.42% 04/25/28 3,000 3,018,717
------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $519,563,257) 518,866,838
------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 0.6%
Federal Home Loan Mortgage Corp.,
Series 1361, Class I
6.00% 09/15/07 3,874 3,750,461
Federal National Mortgage
Association Strip Notes,
Series 279, Class 1 (PO)
6.00%*** 07/01/26 189 150,068
Federal National Mortgage Association,
Series 96-54, Class A (PO)
6.50%*** 04/25/21 734 634,153
Federal National Mortgage Association,
Series 99-17, Class HJ (PO)
4.00%*** 12/25/23 795 314,522
Federal National Mortgage Association,
Series 99-17, Class JH (PO)
5.00%*** 04/25/24 1,585 669,167
Federal National Mortgage Association,
Series 99-51, Class L (PO)
5.60%*** 10/25/29 750 333,780
See accompanying notes to financial statements.
27
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
CORE BOND PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS (CONTINUED)
Residential Accredit Loans, Inc.,
Series 97-QS7, Class A1
7.50% 07/25/27 $ 84 $ 84,005
Salomon Brothers Mortgage Securities
VI, Series 87-1 (IO)
7.00%*** 02/17/17 1,284 333,820
Salomon Brothers Mortgage Securities
VI, Series 87-1 (PO)
7.00%*** 02/17/17 1,340 1,041,319
Salomon Brothers Mortgage Securities
VI, Series 87-2 (IO)
6.00%*** 03/06/17 882 225,921
Salomon Brothers Mortgage Securities
VI, Series 87-2 (PO)
6.00%*** 03/06/17 882 684,514
Salomon Brothers Mortgage Securities,
Series 87-3, Class A (PO)
12.50%*** 10/23/17 372 299,200
Salomon Brothers Mortgage Securities,
Series 87-3, Class B (IO)
5.00%*** 10/23/17 281 67,601
Structured Asset Securities Corp.,
Series 96-CFL, Class X1 (IO)
5.05%*** 02/25/28 16,716 929,902
------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $10,387,402) 9,518,433
------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 5.8%
Allied Capital Commercial
Mortgage Trust,
Series 98-1, Class A
6.31% 09/25/03 954 943,829
Chase Commercial Mortgage
Securities Corp.,
Series 97-1, Class X (IO)
8.69%*** 04/19/15 46,459 2,892,828
Credit Suisse First Boston
Mortgage Securities Corp.,
Series 00-1, Class 4A
6.63% 03/15/15 9,794 9,391,933
Credit Suisse First Boston
Mortgage Securities Corp.,
Series 97-C1, Class AX (IO)
8.60%*** 04/20/22 60,773 4,801,951
Credit Suisse First Boston
Mortgage Securities Corp.,
Series 97-C2, Class AX (IO)
8.32%*** 11/17/22 19,191 1,106,739
Donaldson, Lufkin and Jenrette, Inc.
Mortgage Acceptance Corp.,
Series 95-CF2, Class A1A
6.65% 12/17/27 1,238 1,229,680
Donaldson, Lufkin and Jenrette, Inc.
Mortgage Acceptance Corp.,
Series 96-CF2, Class A1A
6.86% 11/12/21 1,115 1,107,617
Donaldson, Lufkin and Jenrette, Inc.
Mortgage Acceptance Corp.,
Series 97-CF1, Class A1B
7.60% 04/15/07 2,000 2,030,261
Par
Maturity (000) Value
--------- ------- ------------
COMMERCIAL MORTGAGE BACKED
SECURITIES (CONTINUED)
First Union-Lehman Brothers-
Bank of America Commercial
Mortgage Trust,
Series 97-C1, Class A3
7.38% 04/18/07 $10,485 $ 10,582,086
GE Capital Mortgage Services, Inc.,
Series 94-14, Class A3
6.50% 04/25/24 3,000 2,896,875
General Motors Acceptance Corp.
Commercial Mortgage Securities, Inc.,
Series 97-C1, Class X (IO)
8.26%*** 07/15/27 58,295 4,239,805
General Motors Acceptance Corp.
Commercial Mortgage Securities, Inc.,
Series 97-C2, Class A3
6.56% 11/15/07 2,900 2,799,079
Lehman Brothers Commercial
Conduit Mortgage Trust,
Series 98-C4, Class X (IO)
9.77%*** 09/15/23 17,649 598,535
Midland Royalty Acceptance Corp.,
Series 96-C, Class A
7.23% 01/25/29 4,050 4,047,343
Mortgage Capital Funding, Inc.,
Series 98-MC3, Class A2
6.34% 11/18/31 2,845 2,667,016
Norwest Asset Securities Corp.,
Series 98-27, Class A
6.25% 11/25/13 9,637 9,089,869
Residential Asset Securitization Trust,
Series 98-A3, Class A
6.50% 04/25/13 5,224 5,013,607
Residential Funding Mortgage
Securities I, Series 98-S7, Class A1
6.50% 03/25/13 7,145 6,930,920
Salomon Brothers Mortgage
Securities VII, Series 00-NL1, Class A1
6.60% 10/01/30 1,118 1,097,927
Structured Asset Mortgage
Investments, Inc.,
Series 98-9, Class 2A2
6.13% 11/25/13 1,198 1,145,061
Summit Mortgage Trust,
Series 00-1, Class B1
6.14%** 12/28/12 7,267 6,991,097
Union Acceptance Corp.,
Series 00-B, Class A4
7.54% 10/09/06 4,000 4,089,375
Union Planters Mortgage
Finance Corp.,
Series 99-1, Class A1
6.25% 04/01/29 849 822,118
------------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $87,023,696) 86,515,551
------------
PROJECT LOANS -- 0.9%
Evergreen Tower II, Construction
Loan Collateral
7.38% 09/01/39 916 907,162
Evergreen Tower II, Construction
Loan Committment
7.38% 03/01/02 59 58,569
See accompanying notes to financial statements.
28
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
CORE BOND PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
PROJECT LOANS (CONTINUED)
Federal Housing Authority,
East Point Chelsea
10.25% 05/01/33 $ 2,695 $ 2,857,852
Federal Housing Authority,
University Park Apartments
7.88% 10/01/37 7,621 7,690,560
Pheasant Run Manor,
Construction Loan Collateral
6.88% 05/15/02 1,080 1,035,164
Pheasant Run Manor,
Construction Loan Committment
6.88% 08/01/01 183 175,071
Renaissance Apartments,
Construction Loan Collateral
7.50% 06/01/39 976 974,660
Renaissance Apartments,
Construction Loan Committment
7.50% 06/01/01 94 94,223
------------
TOTAL PROJECT LOANS
(Cost $13,883,639) 13,793,261
------------
ASSET BACKED SECURITIES -- 8.4%
Amresco Securitized Net Interest
Margin Trust, Series 96-1, Class A
8.10% 04/26/26 456 301,102
Arcadia Automobile Receivables Trust,
Series 97-C, Class A5
6.55% 06/15/05 4,000 3,981,250
Associates Manufactured Housing
Pass-Through,
Series 96-1, Class B1
8.00% 03/15/27 2,815 2,502,271
Chevy Chase Auto Receivables Trust,
Series 97-2, Class A
6.35% 01/15/04 1,196 1,191,443
Chevy Chase Auto Receivables Trust,
Series 97-3, Class A
6.20% 03/20/04 465 462,607
Citibank Credit Card Issuance Trust,
Series 00-A1, Class A1
6.90% 10/15/07 17,950 17,955,609
Citibank Credit Card Master Trust I,
Series 97-6, Class A (PO)
7.61%*** 08/15/06 16,780 12,887,337
Citibank Credit Card Master Trust I,
Series 98-2, Class A
6.05% 01/15/10 50 47,477
Conseco Finance Securitizations Corp.,
Series 00-4, Class A3
7.47% 05/01/32 7,575 7,615,242
First Security Auto Owner Trust,
Series 00-1, Class A3
7.30% 07/15/04 8,850 8,924,672
First Security Auto Owner Trust
Series 00-2, Class A4
6.93% 01/15/05 5,845 5,849,694
FMAC Loan Receivables Trust,
Series 97-B, Class A
6.85% 09/15/19 4,977 4,798,314
Ford Credit Auto Owner Trust,
Series 00-C, Class A4
7.24% 02/15/04 1,155 1,164,384
Ford Credit Auto Owner Trust,
Series 00-E, Class A3
6.74% 12/15/02 6,900 6,896,766
Par
Maturity (000) Value
--------- ------- ------------
ASSET BACKED SECURITIES (CONTINUED)
Green Tree Financial Corp.,
Series 94-B, Class A
7.85% 07/15/04 $ 26 $ 25,249
Green Tree Financial Corp.,
Series 95-A, Class A
7.25% 07/15/05 1,901 1,786,371
Green Tree Home Improvement
Loan Trust,
Series 94-D, Class M
9.05% 01/15/15 190 195,449
MBNA Master Credit Card Trust,
Series 00-E, Class A
7.80% 10/15/12 9,800 10,332,875
MBNA Master Credit Card Trust,
Series 99-G, Class A
6.35% 12/15/06 13,725 13,583,461
Mid-State Trust I,
Series 1, Class A1
7.34%++ 07/01/35 3,082 2,970,777
Mid-State Trust,
Series 6, Class A4
7.79% 07/01/35 824 742,791
Onyx Acceptance Auto Trust,
Series 00-B, Class A3
7.29% 08/15/04 8,325 8,392,641
Pegasus Aviation Lease
Securitization, Series
99-1A, Class A1
6.30% 03/25/29 1,678 1,644,143
Puget Power Conservation
Grantor Trust,
Series 97-1, Class A
6.23% 07/11/02 1,137 1,132,651
Toyota Auto Receivables
Owner Trust,
Series 00-A, Class A3
7.18% 08/15/04 10,250 10,342,891
------------
TOTAL ASSET BACKED SECURITIES
(Cost $124,944,246) 125,727,467
------------
CORPORATE BONDS -- 25.3%
AIR TRANSPORTATION -- 0.1%
Continental Airlines
7.06% 09/15/09 965 929,416
------------
FINANCE -- 7.8%
AT&T Capital Corp.
6.25% 05/15/01 4,000 3,986,860
Auburn Hills Trust
12.00% 05/01/20 3,825 5,454,832
Bank of America Corp.
7.12% 09/15/06 4,610 4,611,323
5.87% 02/15/09 4,500 4,106,232
Donaldson, Lufkin and Jenrette, Inc.
7.07% 12/13/02 6,470 6,483,582
Fleetboston Financial Corp.
7.25% 09/15/05 6,275 6,311,277
FMR Corp.
7.57% 06/15/29 3,405 3,307,627
Ford Motor Credit Co.
7.60% 08/01/05 10,300 10,385,540
5.80% 01/12/09 13,050 11,580,792
7.37% 10/28/09 17,195 16,857,634
Goldman Sachs Group
6.65% 05/15/09 4,420 4,169,516
See accompanying notes to financial statements.
29
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
CORE BOND PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
CORPORATE BONDS (CONTINUED)
FINANCE (CONTINUED)
IBM Credit Corp.
6.45% 11/12/02 $ 3,560 $ 3,537,857
J.P. Morgan & Co., Inc.
8.12%** 02/15/12 100 86,812
Lehman Brothers Holdings, Inc.
6.62% 02/05/06 4,000 3,863,588
Merrill Lynch & Co., Inc.
5.75% 11/04/02 2,445 2,391,870
MidAmerican Funding LLC
5.85% 03/01/01 4,845 4,811,327
Morgan Stanley, Dean Witter & Co.
7.12% 01/15/03 35 35,225
Reliant Energy Finance Co. II
7.40% 11/15/02 2,770 2,747,858
Simon Property Group LP, Inc.
6.63% 06/15/03 4,200 4,068,834
Swedbank
9.00% 12/29/49 7,500 7,565,625
Wells Fargo Capital
7.73% 12/01/26 2,310 2,095,329
Yorkshire Power Finance
6.49% 02/25/08 5,435 4,935,806
Zurich Capital Trust International
8.38% 06/01/37 3,785 3,613,997
------------
117,009,343
------------
INDUSTRIAL -- 5.3%
Atlantic Richfield
9.13% 03/01/11 4,960 5,710,478
7.00% 04/15/38 2,255 2,225,899
Chrysler Corp.
7.45% 03/01/27 5,500 5,247,074
Corning, Inc.
6.30% 03/01/09 3,000 2,820,210
Cox Enterprises, Inc.
6.63% 06/14/02 2,380 2,354,105
DaimlerChrysler North
America Holdings
6.67% 02/15/02 4,800 4,780,779
8.00% 06/15/10 10 10,323
Enron Corp.
6.45% 11/15/01 3,000 2,982,212
Ford Motor Co.
6.38% 02/01/29 2,000 1,613,140
Hyder PLC
7.38% 12/15/28 2,585 1,918,183
International Paper Co.
8.12% 07/08/05 4,240 4,371,009
Jones Apparel Group, Inc.
6.25% 10/01/01 7,050 6,908,951
Lockheed Martin Corp.
7.45% 06/15/04 6,475 6,490,521
Monsanto Co.
6.85% 12/01/28 5,010 4,412,177
Nabisco, Inc.
6.00% 02/15/01 2,445 2,422,498
Qwest Capital Funding, Inc.
7.90% 08/15/10 6,500 6,639,243
Rohm & Haas Co.
7.85% 07/15/29 3,630 3,585,286
Tyco Intl. Group, S.A.
6.25% 06/15/03 6,340 6,171,541
Union Carbide
7.88% 04/01/23 3,365 3,368,496
Par
Maturity (000) Value
--------- ------- ------------
CORPORATE BONDS (CONTINUED)
INDUSTRIAL (CONTINUED)
US West Capital Funding, Inc.
6.87% 08/15/01 $ 3,000 $ 2,997,585
Yosemite Securities Trust I
8.25% 11/15/04 2,820 2,862,747
------------
79,892,457
------------
INSURANCE -- 2.1%
Ace Capital Trust II
9.70% 04/01/30 3,260 3,421,540
AON Capital Trust A
8.20% 01/01/27 5,000 4,657,812
Equitable Cos., Inc.
9.00% 12/15/04 3,500 3,709,720
Everest Reinsurance Holdings
8.50% 03/15/05 20 20,594
Jackson National Life Insurance Co.
8.15% 03/15/27 3,275 3,141,884
John Hancock Global Funding II
7.90% 07/02/10 6,850 7,067,878
Liberty Mutual Insurance Co.
7.70% 10/15/45 3,940 2,877,070
Royal & Sun Alliance Insurance
8.95% 10/15/29 4,640 4,594,624
Safeco Capital Trust I
8.07% 07/15/37 2,400 2,042,333
------------
31,533,455
------------
TELECOMMUNICATIONS -- 1.5%
Cable and Wireless Optus Finance
8.00% 06/22/10 5,625 5,667,441
Clear Channel Communications
6.50% 07/07/05 7,570 6,695,660
Deutsche Telekom International Finance
8.25% 06/15/30 7,385 7,609,504
Sprint Capital Corp.
5.70% 11/15/03 2,800 2,697,556
------------
22,670,161
------------
TRANSPORTATION -- 0.3%
Federal Express Corp.
7.11% 01/02/14 3,119 2,861,571
6.72% 01/15/22 1,782 1,664,545
------------
4,526,116
------------
UTILITY -- 1.9%
Calpine Corp.
8.25% 08/15/05 3,800 3,804,750
Coastal Corp.
6.37% 02/01/09 4,550 4,234,589
Dominion Resoures, Inc.
8.12% 06/15/10 3,900 4,037,436
Pinnacle Partners
8.83% 08/15/04 6,000 6,067,500
Reliant Energy, Inc.
6.50% 02/01/08 4,910 4,483,724
Texaco Capital, Inc.
8.00% 08/01/32 4,125 4,313,512
TXU Eastern Funding Co.
6.15% 05/15/02 310 303,089
------------
27,244,600
------------
See accompanying notes to financial statements.
30
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
CORE BOND PORTFOLIO (CONCLUDED)
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
CORPORATE BONDS (CONTINUED)
YANKEE -- 6.3%
Abbey National Capital Trust I
8.96% 12/29/49 $ 1,970 $ 1,970,000
Abitibi-Consolidated, Inc.
8.30% 08/01/05 6,125 6,255,105
Asian Development Bank
6.37% 10/01/04 3,010 2,979,319
Avon Energy Partners Holding
7.05% 12/11/07 2,215 2,066,595
6.46% 03/04/08 5,000 4,471,150
Buoni Poliennali del Tesoro
5.00% 06/15/03 28,765 25,210,368
Deutsche Bank Capital Funding
Trust Investment
7.87%** 12/29/49 7,765 7,398,589
Empresa Electrica Pehuenche
7.30% 05/01/03 4,985 4,898,078
HSBC Capital Funding
10.17%** 12/31/49 2,430 2,636,550
Japan Bank For International Cooperation
7.12% 06/20/05 4,020 4,035,075
Koninklijke KPN NV
8.00% 10/01/10 4,275 4,277,934
8.37% 10/01/30 2,150 2,149,904
Pemex Finance Ltd.
9.14% 08/15/04 2,520 2,598,599
9.03% 02/15/11 1,700 1,746,529
State of Qatar
9.75% 06/15/30 2,730 2,792,611
Swedbank
7.50%** 09/29/49 2,800 2,534,000
United Mexican States
8.50% 02/01/06 9,350 9,307,925
10.37% 02/17/09 2,860 3,118,830
11.38% 09/15/16 1,670 1,945,550
6.25% 12/31/19 1,390 1,237,969
------------
93,630,680
------------
TOTAL CORPORATE BONDS
(Cost $380,152,815) 377,436,228
------------
TAXABLE MUNICIPAL BONDS -- 1.1%
New Jersey Economic Development
Authority State Pension Funding
Zero Coupon Revenue Bond,
Series 97-B
6.80%*** 02/15/05 200 148,690
7.21%*** 02/15/18 5,500 1,531,530
7.56%*** 02/15/16 10,100 3,292,600
7.59%*** 02/15/17 3,575 1,076,647
7.62%*** 02/15/20 6,265 1,494,516
7.63%*** 02/21-02/23 7,810 1,615,900
New York State Power Authority and
General Purpose Revenue Bond,
Series 98D
6.26% 02/15/03 7,100 7,019,132
------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $16,251,502) 16,179,015
------------
Shares
(000) Value
------- ------------
PREFERRED STOCK -- 0.2%
Centaur Funding Corp., Cumulative 144A
9.08% (Cost $4,150,000) 4,150 $ 4,135,554
--------------
SHORT TERM INVESTMENTS -- 0.1%
Galileo Money Market Fund
(Cost $1,068,887) 1,069 1,068,887
--------------
TOTAL INVESTMENTS IN
SECURITIES -- 100.0%
(Cost $1,496,860,593*) $1,493,562,718
==============
-------------------
* Cost for Federal income tax purposes is $1,497,816,061. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $13,075,731
Gross unrealized depreciation (17,329,074)
-----------
$(4,253,343)
===========
** Rates shown are the rates as of September 30, 2000.
*** Rates shown are the effective yields as of September 30, 2000.
+ Securities with a market value of $29,412,096 have been pledged as
collateral for reverse repurchase agreements.
++ Securities pledged as collateral with a value of $2,232,740 on 202 long U.S.
Treasury Bond futures contracts, 1,069 short U.S. Treasury Notes futures
contracts, 235 long Euro-Bobl futures contracts and 205 Euro-Bond futures
contracts expiring December 2000. The value of such contracts on September
30, 2000 was $167,616,721, thereby resulting in an unrealized loss of
$252,055.
See accompanying notes to financial statements.
31
<PAGE>
BLACKROCK FUNDS
STATEMENT OF ASSETS AND LIABILITIES
CORE BOND PORTFOLIO
SEPTEMBER 30, 2000
ASSETS
Investments at value (Cost $1,496,860,593) ............. $1,493,562,718
Collateral received for securities loaned .............. 168,400,375
Collateral received for swap contracts ................. 730,730
Interest receivable .................................... 15,366,116
Interest receivable on interest rate swaps ............. 994,469
Principal receivable ................................... 54,202
Investments sold receivable ............................ 78,671,887
Capital shares sold receivable ......................... 1,449,775
Prepaid expenses ....................................... 15,667
Futures margin receivable .............................. 75,892
Unrealized appreciation on interest rate swaps ......... 1,444,733
--------------
TOTAL ASSETS .................................... 1,760,766,564
--------------
LIABILITIES
Payable upon return of securities loaned ............... 168,400,375
Payable upon termination of swap contracts ............. 730,730
Investments purchased payable .......................... 99,261,204
Reverse repurchase agreements payable .................. 29,231,762
Capital shares redeemed payable ........................ 1,258,520
Distributions payable .................................. 7,696,851
Advisory fees payable .................................. 261,450
Administrative fees payable ............................ 222,040
Transfer agent fees payable ............................ 36,534
Other accrued expenses payable ......................... 223,244
Futures margin payable ................................. 95,750
Unrealized depreciation on interest rate swaps ......... 358,649
--------------
TOTAL LIABILITIES ............................... 307,777,109
--------------
NET ASSETS (Applicable to 34,255,022 BlackRock shares,
112,348,745 Institutional shares, 6,342,434 Service
shares, 745,491 Investor A shares, 1,302,960 Investor B
shares and 311,182 Investor C shares outstanding) ...... $1,452,989,455
==============
NET ASSET VALUE AND REDEMPTION PRICE PER
BLACKROCK, INSTITUTIONAL, SERVICE, AND
INVESTOR A SHARE ($1,437,890,337 / 153,691,692) $9.36
=====
OFFERING PRICE PER BLACKROCK, INSTITUTIONAL AND
SERVICE SHARE $9.36
=====
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($9.36 / 0.960) $9.75
=====
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($12,188,616 / 1,302,960) $9.35
=====
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($2,910,502 / 311,182) $9.35
=====
See accompanying notes to financial statements.
32
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
GOVERNMENT INCOME PORTFOLIO
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS -- 14.8%
Small Business Administration
Participation Certificates,
Series 96-20J, Class 1
7.20% 10/01/16 $ 386 $ 384,715
Small Business Administration
Participation Certificates,
Series 98-20J, Class 1
5.50% 10/01/18 226 202,827
U.S. Treasury Bonds
9.25%+ 02/15/16 2,215 2,902,341
U.S. Treasury Notes
6.37% 04/30/02 325 326,422
6.50% 10/15/06 840 863,363
------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $4,666,642) 4,679,668
------------
MORTGAGE PASS-THROUGHS -- 91.8%
Federal Home Loan
Mortgage Corp.
7.00%++ 08/10-03/11 918 914,054
8.00%+++ 05/12-11/26 2,808 2,855,455
6.00% 12/12-05/14 1,189 1,146,507
5.50% 10/13-11/13 1,767 1,670,162
7.50% 11/25-06/26 2,034 2,032,200
Federal Home Loan Mortgage
Corp. Gold
5.50% 05/01/14 487 460,153
6.50% 06/01/29 561 539,465
Federal National Mortgage
Association
5.50% 09/08-08/09 543 523,887
6.00% 11/09-03/14 3,258 3,201,780
6.14% 06/01/14 647 623,421
6.50% 06/14-08/14 1,892 1,834,714
7.00% 09/14-04/26 846 838,355
7.50% 07/28-10/28 1,039 1,000,908
8.00% 10/28-01/29 1,531 1,490,724
8.09%** 01/01/29 922 862,406
8.50% 02/29-07/29 602 578,392
Government National
Mortgage Association
6.00% 04/13-04/14 895 873,587
6.50% 06/14-12/27 4,145 4,038,542
7.00% 01/28-06/28 1,879 1,839,672
7.50% 11/28-02/29 1,672 1,612,206
8.00% 06/15/29 90 86,329
------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $29,349,705) 29,022,919
------------
MULTIPLE CLASS MORTGAGE PASS-THROUGHS -- 1.7%
Federal National Mortgage Association,
Series 96-54, Class A (PO)
6.50%*** 04/25/21 175 151,526
Residential Accredit Loans, Inc.,
Series 98-D7, Class CB6
6.75% 05/25/28 165 162,741
Salomon Brothers Mortgage
Securities VI, Series 87-1 (IO)
7.00%*** 02/17/17 226 58,659
Salomon Brothers Mortgage
Securities VI, Series 87-1 (PO)
7.00%*** 02/17/17 226 175,273
------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $567,477) 548,199
------------
Par
Maturity (000) Value
--------- ------- ------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 2.0%
Capco America Securitization Corp.,
Series 98-D7, Class A1B
6.26% 09/15/08 $ 70 $ 66,334
Deutsche Mortgage and Asset
Receiving Corp.,
Series 98-C1, Class A1
6.22% 09/15/07 105 102,942
Goldman Sachs Mortgage
Securities Corp.,
Series 98-1, Class A
8.00% 09/20/27 158 160,345
Goldman Sachs Mortgage
Securities Corp.,
Series 98-2, Class A
7.75% 05/19/27 172 173,109
Union Planters Mortgage
Finance Corp.,
Series 98-1, Class A1
6.35% 01/25/28 119 117,823
------------
TOTAL COMMERCIAL MORTGAGE
BACKED SECURITIES
(Cost $629,023) 620,553
------------
PROJECT LOANS -- 0.8%
Federal Housing Authority,
INSD Project, Series 82
7.43%
(Cost $283,945) 09/01/22 276 270,267
------------
ASSET BACKED SECURITIES -- 0.9%
Chase Manhattan Grantor Trust,
Series 96-B, Class A
6.61% 09/15/02 11 11,287
The Money Store Small Business
Administration Loan Trust,
Series 99-1, Class A
7.17%** 07/15/25 263 262,580
------------
TOTAL ASSET BACKED SECURITIES
(Cost $273,787) 273,867
------------
SHORT TERM INVESTMENTS -- 6.8%
Federal Home Loan Bank
Discount Notes
6.28% 10/02/00 1,000 999,826
Galileo Money Market Fund 1,159 1,158,919
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $2,158,745) 2,158,745
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $37,929,324*) 118.8% 37,574,218
------------
REVERSE REPURCHASE AGREEMENTS -- (12.1%)
Salomon Smith Barney
(Agreement dated 09/26/00 to be
repurchased at $2,644,246.
Collateralized by $2,000,000 U.S.
Treasury Bonds 9.25% due 02/15/16. The
value of the collateral is $2,644,770.)
6.50% 10/26/00 2,630 (2,632,850)
See accompanying notes to financial statements.
33
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
GOVERNMENT INCOME PORTFOLIO (CONCLUDED)
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
REVERSE REPURCHASE AGREEMENTS (CONTINUED)
Salomon Smith Barney
(Agreement dated 09/06/00 to be
repurchased at $1,187,476.
Collateralized by $1,199,667 Federal
Home Loan Mortgage Corp. Gold
8.00% due 11/01/26. The value of
the collateral is $1,226,302.)
6.58% 10/06/00 $1,181 $ (1,186,612)
------------
TOTAL REVERSE REPURCHASE
AGREEMENTS
(Cost $3,811,000) (3,819,462)
LIABILITIES IN EXCESS OF
OTHER ASSETS (Including $2,470,328
of investment purchases payable) (6.7%) (2,151,696)
------ ------------
NET ASSETS (Applicable to 569,818 Investor A
shares, 2,453,806 Investor B shares
and 127,600 Investor C shares
outstanding) 100.0% $ 31,603,060
====== ============
NET ASSET VALUE AND REDEMPTION
PRICE PERINVESTOR A SHARE
($5,715,629 / 569,818) $10.03
======
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE ($10.03 / .955) $10.50
======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE (SUBJECT
TO A CONTINGENT DEFERRED SALES CHARGE
OF 4.5%) PER INVESTOR B SHARE
($24,608,346 / 2,453,806) $10.03
======
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE (SUBJECT TO A
CONTINGENT DEFERRED SALES CHARGE
OF 1.0%) PER INVESTOR C SHARE
($1,279,085 / 127,600) $10.02
======
----------------------
* Cost for Federal income tax purposes is $37,968,959. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 196,280
Gross unrealized depreciation (591,021)
---------
$(394,741)
=========
** Rates shown are the rates as of September 30, 2000.
*** Rates shown are the effective yields as of September 30, 2000.
+ Securities with a market value of $3,871,072 have been pledged as collateral
for reverse repurchase agreements.
++ Securities pledged as collateral with a value of $184,479 on 47 long U.S.
Treasury Notes futures contracts expiring December 2000. The value of such
contracts on September 30, 2000 was $4,710,281, thereby resulting in an
unrealized gain of $33,782.
See accompanying notes to financial statements.
34
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
GNMA PORTFOLIO
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 6.1%
U.S. Treasury Bonds
9.25% 02/15/16 $1,000 $ 1,310,312
U.S. Treasury Notes
6.37% 04/30/02 875 878,828
5.50% 05/31/03 10 9,891
4.75% 02/15/04 300 289,406
5.87% 11/15/04 595 594,628
5.75% 08/15/10 2,900 2,889,125
------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $5,934,830) 5,972,190
------------
MORTGAGE PASS-THROUGHS -- 97.8%
Federal Home Loan
Mortgage Corp.
5.50% 02/09-03/14 4,261 4,049,911
6.00% 11/13-01/29 878 826,119
7.50% 02/27-05/27 557 556,768
Federal Home Loan Mortgage
Corp. Gold
6.50% 06/01/29 397 381,830
Federal National Mortgage
Association
8.10% 10/02/00 1,053 1,072,001
6.14% 09/10/08 770 723,923
6.00% 04/11-01/14 1,881 1,811,672
7.00% 05/01/11 1,291 1,289,446
6.50% 02/13-07/29 1,256 1,222,693
8.00% 11/13-08/14 1,320 1,340,029
5.50% 12/13-03/14 2,826 2,665,258
8.50% 10/01/28 2,164 2,216,929
Government National
Mortgage Association
8.00%+++ 12/07-08/30 12,499 12,718,622
8.50% 01/17-09/21 2,271 2,336,727
7.00%+ 09/17-07/29 16,655 16,388,834
9.00% 05/18-07/21 1,315 1,364,396
7.50% 01/22-11/29 14,173 14,223,495
6.50%+ 06/23-03/29 31,321 30,208,203
------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $95,702,304) 95,396,856
------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 0.4%
Residential Accredit Loans, Inc.,
Series 98-QS6, Class CB6
6.75%
(Cost $436,192) 05/25/28 440 433,977
------------
PROJECT LOANS -- 3.0%
Federal Housing Administration,
Prairie District Lofts,
Construction Loan Collateral
7.41% 12/01/38 1,412 1,402,454
Federal Housing Administration,
Prairie District Lofts,
Construction Loan Commitment
7.41% 12/01/38 73 72,276
Federal Housing Authority,
INSD Project, Series 82
7.43% 09/01/22 1,450 1,418,901
------------
TOTAL PROJECT LOANS
(Cost $2,970,592) 2,893,631
------------
Par/Shares
Maturity (000) Value
--------- ------- ------------
ASSET BACKED SECURITIES -- 0.8%
The Money Store Small Business
Administration Loan Trust,
Series 99-1, Class A
7.17%**
(Cost $787,621) 07/15/25 $ 788 $ 787,739
------------
SHORT TERM INVESTMENTS -- 4.8%
Federal Home Loan Bank
Discount Notes
6.28% 10/02/00 2,900 2,899,494
Galileo Money Market Fund 1,827 1,826,830
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $4,726,324) 4,726,324
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $110,557,863*) 112.9% 110,210,717
REVERSE REPURCHASE AGREEMENTS -- (11.0%)
Salomon Smith Barney
(Agreement dated 08/14/00 to be
repurchased at $10,778,449.
Collateralized by $11,224,895 Government
National Mortgage Association 7.00-8.00%
due 03/20/24 to 08/20/25. The value of
the collateral is $11,101,644.)
6.61%
(Cost $10,661,000) 10/13/00 10,661 (10,754,961)
------------
LIABILITIES IN EXCESS OF
OTHER ASSETS (1.9%) (1,903,959)
====== ------------
NET ASSETS (Applicable to 9,802,412
Institutional shares, 20,310 Service
shares, 193,904 Investor A shares, 34,537
Investor B shares and 2,975
Investor C shares outstanding) 100.0% $ 97,551,797
====== ============
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
INSTITUTIONAL SHARE
($95,108,418 / 9,802,412) $ 9.70
======
NET ASSET VALUE, OFFERING
AND REDEMPTION
PRICE PER SERVICE SHARE $ 9.72
($197,322 / 20,310) ======
NET ASSET VALUE AND REDEMPTION
PRICE PER INVESTOR A SHARE
($1,881,872 / 193,904) $ 9.71
======
See accompanying notes to financial statements.
35
<PAGE>
BLACKROCK FUNDS
STATEMENT OF NET ASSETS
GNMA PORTFOLIO (CONCLUDED)
AS OF SEPTEMBER 30, 2000 Value
------------
MAXIMUM OFFERING PRICE PER
INVESTOR A SHARE
($9.71 / 0.960) $10.11
======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(SUBJECT TO A CONTINGENT DEFERRED
SALES CHARGE OF 4.5%) PER
INVESTOR B SHARE
($335,375 / 34,537) $ 9.71
======
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
(SUBJECT TO A CONTINGENT DEFERRED
SALES CHARGE OF 1.0%) PER
INVESTOR C SHARE
($28,810 / 2,975) $ 9.68
======
-------------------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 826,162
Gross unrealized depreciation (1,173,310)
----------
$ (347,148)
==========
** Rates shown are the rates as of September 30, 2000.
+ Securities with a market value of $11,101,644 have been pledged as collateral
for reverse repurchase agreements.
++ Securities pledged as collateral with a value of $498,048 on 79 short U.S.
Treasury Notes futures contracts expiring December 2000. The value of such
contracts on September 30, 2000 was $7,923,188, thereby resulting in an
unrealized loss of $2,095.
See accompanying notes to financial statements.
36
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 25.4%
Overseas Private Investment Co.
6.46% 12/16/06 $ 217 $ 210,558
5.92% 12/16/06 2,163 2,068,472
6.38% 12/16/06 2,009 1,946,093
6.53% 12/16/06 524 510,194
6.66% 12/16/06 954 917,085
6.87% 12/16/06 1,038 1,008,624
7.01% 12/16/06 679 664,296
7.42% 12/16/06 1,545 1,543,177
6.27% 12/06-05/12 3,535 3,410,584
5.46% 05/29/12 451 413,014
5.79% 05/29/12 407 372,634
5.88% 05/29/12 538 502,220
6.81% 05/29/12 577 549,225
6.84% 05/29/12 751 735,970
6.89% 05/29/12 4,589 4,395,277
6.91% 05/29/12 1,540 1,477,637
7.35% 05/29/12 406 403,301
Small Business Administration
Participation Certificates,
Series 96-20B, Class 1
6.38% 02/01/16 5,607 5,333,360
Small Business Administration
Participation Certificates,
Series 96-20K, Class 1
6.95% 11/01/16 8,207 8,059,765
Small Business Administration
Participation Certificates,
Series 97, Class A
7.35%** 08/15/22 2,598 2,586,892
Small Business Administration
Participation Certificates,
Series 97-20B, Class 1
7.10% 02/01/17 6,597 6,532,278
Small Business Administration
Participation Certificates,
Series 97-20F, Class 1
7.20% 06/01/17 1,927 1,919,343
Small Business Administration
Participation Certificates,
Series 97-20G, Class 1
6.85% 07/01/17 11,305 11,031,693
U.S. Treasury Bonds
12.75%+ 11/15/10 8,725 11,247,066
14.00%+ 11/15/11 13,800 19,298,431
12.50% 08/15/14 820 1,174,650
10.62%+ 08/15/15 5,560 7,985,550
8.50%+ 02/15/20 61,244 77,588,491
6.12%+ 08/15/29 18,035 18,423,889
6.25% 05/15/30 4,475 4,705,744
U.S. Treasury Bonds (CPI)
3.62%+ 04/15/28 30,565 31,006,663
3.87%+ 04/15/29 17,700 18,467,437
U.S. Treasury Notes
6.12% 08/31/02 99,550 99,736,344
5.87%+ 11/15/04 19,010 18,998,119
5.75% 08/15/10 42,975 42,827,657
6.87% 08/15/25 1,240 1,365,163
U.S. Treasury Notes (CPI)
3.62% 01/15/08 18,625 19,444,469
3.87% 01/15/09 7,100 7,411,611
------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $437,420,298) 436,272,976
------------
Par
Maturity (000) Value
--------- ------- ------------
MORTGAGE PASS-THROUGHS -- 39.0%
Federal Home Loan Mortgage
Corp.
9.00% 07/01/01 $ 10 $ 10,530
7.50% 12/06-10/27 10,494 10,565,575
3.87%** 10/15/07 4,396 4,027,431
6.50% 03/09-04/29 8,752 8,562,850
6.00% 11/12-04/30 3,720 3,586,488
7.00% 05/01/26 576 565,159
Federal Home Loan Mortgage
Corp. Gold
6.50% 03/11-10/29 37,864 36,425,643
6.00% 05/14-08/29 7,046 6,660,718
9.00% 12/01/22 12,364 12,788,735
7.00% 04/01/29 248 243,833
8.00% 05/30-06/30 7,819 7,938,740
Federal National Mortgage
Association
9.50% 03/05-07/16 678 704,502
7.00% 06/06-05/26 5,725 5,640,801
6.80% 07/23/07 12,025 11,772,715
6.04% 02/25/09 26,800 24,895,324
8.00% 08/09-07/30 30,687 31,128,512
6.50% 02/11-12/13 8,644 8,484,146
6.00% 09/12-08/29 117,123 111,523,940
5.50% 09/13-06/24 231,055 217,914,089
8.50% 10/01/28 14,491 14,843,786
7.50% 02/01/30 173 173,124
Federal National Mortgage
Association 10 Year Balloon
6.00% 12/01/03 2,229 2,174,721
Government National Mortgage
Association
8.50% 01/10-11/21 322 331,673
9.50% 09/16-12/24 719 740,935
9.00% 03/18-11/20 596 618,283
8.00% 02/22-08/30 29,679 30,236,374
7.50% 04/23-09/27 737 740,082
6.50% 11/23-07/29 60,435 58,282,065
7.00% 02/26-09/28 20,052 19,769,568
Government National Mortgage
Association II
5.50%** 12/20/29 8,367 8,200,402
6.50%** 05/20/30 11,393 11,329,176
MLCC Mortgage Investors, Inc.,
Series 95-C, Class D
7.90%** 05/25/15 3,506 3,521,462
MLCC Mortgage Investors, Inc.,
Series 95-C2 (IO)
10.40%*** 06/15/21 48,216 1,416,358
MLCC Mortgage Investors, Inc.,
Series 96-C1, Class A2
7.24% 04/25/28 7,113 7,107,220
MLCC Mortgage Investors, Inc.,
Series 96-C1, Class A3
7.42% 04/25/28 5,500 5,534,315
------------
TOTAL MORTGAGE PASS-THROUGHS
(Cost $680,350,506) 668,459,275
------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 0.2%
Federal National Mortgage
Association Strip Notes,
Series 279, Class 1 (PO)
6.00%*** 07/01/26 690 546,328
See accompanying notes to financial statements.
37
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS (CONTINUED)
Federal National Mortgage
Association, Series 99-17,
Class HJ (PO)
4.00%*** 12/25/23 $ 1,905 $ 753,666
Federal National Mortgage Association,
Series 99-17, Class JH (PO)
5.00%*** 04/25/24 1,810 764,159
Federal National Mortgage Association,
Series 99-51, Class L (PO)
5.00%*** 10/25/29 1,406 625,837
Residential Accredit Loans, Inc.,
Series 97-QS7, Class A1
7.50% 07/25/27 95 94,321
------------
TOTAL MULTIPLE CLASS MORTGAGE
PASS-THROUGHS
(Cost $3,140,419) 2,784,311
------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 4.5%
Capco America Securitization Corp.,
Series 98-D7, Class A1B
6.26% 09/15/08 3,905 3,700,468
COMM, Series 99-1, Class A2
6.46% 09/15/08 7,299 7,002,416
COMM, Series 00-C1, Class A2
7.41%** 04/15/10 1,075 1,092,133
Commercial Capital Access One,
Series 98-3, Class A1
6.30% 11/15/28 6,009 5,828,868
Credit Suisse First Boston Mortgage
Securities Corp.,
Series 99-1, Class A1
6.75% 12/27/28 5,665 5,561,037
FFCA Secured Lending Corp.,
Series 98-1, Class A1B
6.73% 07/18/13 8,246 7,921,071
Lehman Brothers Commercial
Conduit Mortgage Trust,
Series 98-C1, Class A3
6.48% 01/18/08 735 704,157
Midland Royalty Acceptance Corp.,
Series 96-C, Class A
7.23% 01/25/29 6,200 6,195,932
Morgan Stanley Capital International, Inc.,
Series 99-RM1, Class A2
6.71% 12/15/31 4,296 4,183,837
Mortgage Capital Funding, Inc.,
Series 98-MC3, Class A2
6.34% 11/18/31 575 539,028
Norwest Asset Securities Corp.,
Series 98-27, Class A1
6.25% 11/25/13 13,461 12,695,654
Prudential Securities Secured
Financing Corp.,
Series 98-C1, Class A1B
6.51% 07/15/08 4,050 3,885,837
Summit Mortgage Trust,
Series 00-1, Class B1
6.14%** 12/28/12 8,438 8,116,188
Union Planters Mortgage
Finance Corp.,
Series 98-1, Class A3
6.60% 01/25/28 9,094 8,937,205
Par
Maturity (000) Value
--------- ------- ------------
COMMERCIAL MORTGAGE BACKED
SECURITIES (CONTINUED)
USGI, Series 87
7.43% 12/01/22 $ 833 $ 815,245
------------
TOTAL COMMERCIAL MORTGAGE BACKED
SECURITIES
(Cost $77,790,163) 77,179,076
------------
PROJECT LOANS -- 2.4%
Federal Housing Authority,
Elmwood Manor Project Loan
9.75% 03/01/32 842 858,244
Federal Housing Authority,
Lakeland Nursing, Construction
Loan Collateral
7.88% 12/01/34 11,715 11,867,977
Federal Housing Authority,
Meadowbrook of Topeka,
Construction Loan Collateral
8.50% 08/01/22 1,644 1,631,310
Federal Housing Authority,
University Park Apartments
7.88% 10/01/37 4,477 4,518,373
Meadows II Apartments,
Construction Loan Collateral
7.00% 01/15/01 3,582 3,479,436
Meadows II Apartments,
Construction Loan Committment
7.00% 12/01/00 281 273,028
Quabbin Valley Healthcare,
Construction Loan Collateral
7.66% 06/01/39 1,022 1,021,832
Whittier Rehab At Haverhill
Project Loan
7.60% 11/01/00 397 394,424
7.60% 12/01/39 9,161 9,109,813
Whittier Rehab At Westborough
Project Loan
8.12% 02/28/37 7,084 7,229,926
------------
TOTAL PROJECT LOANS
(Cost $40,382,724) 40,384,363
------------
ASSET BACKED SECURITIES -- 6.1%
ACLC Business Loan
Receivables Trust,
Series 98-1, Class A1
6.44% 09/15/19 9,575 9,191,544
Associates Manufactured Housing
Pass-Through,
Series 96-1, Class B1
8.00% 03/15/27 3,200 2,844,500
Chase Credit Card Master Trust,
Series 97-5, Class A
6.19%++ 08/15/05 12,430 12,281,461
Citibank Credit Card Master Trust I,
Series 97-6, Class A (PO)
7.36%*** 08/15/06 8,800 6,758,556
Daimler-Benz Auto Grantor Trust,
Series 97-A, Class A
6.05%**++ 03/31/05 752 748,727
Equicon Home Equity Loan Trust,
Series 93-1, Class I (IO)
7.00%*** 02/18/13 4,615 5,047
Fifth Third Auto Grantor Trust,
Series 96-B, Class A
6.45% 03/15/02 83 83,128
See accompanying notes to financial statements.
38
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
ASSET BACKED SECURITIES (CONTINUED)
FMAC Loan Receivables Trust,
Series 97-B, Class A
6.85% 09/15/19 $ 5,750 $ 5,544,024
FMAC Loan Receivables Trust,
Series 97-C, Class A
6.75% 12/15/19 2,225 2,125,048
Ford Credit Auto Owner Trust,
Series 99-C, Class A4
6.08% 09/16/02 10,650 10,593,422
Green Tree Financial Corp.,
Series 94-B, Class A
7.85% 07/15/04 274 265,372
Green Tree Financial Corp.,
Series 95-A, Class A
7.25% 07/15/05 1,785 1,677,344
Green Tree Financial Corp.,
Series 96-5, Class A7
8.25% 07/15/27 5,524 5,593,266
Green Tree Financial Corp.,
Series 96-7, Class A6
7.65% 10/15/27 9,009 9,044,342
Green Tree Home Improvement
Loan Trust,
Series 94-D, Class M
9.05% 01/15/15 136 139,606
Green Tree Home Improvement
Loan Trust,
Series 96-C, Class HIB1
7.75% 06/15/21 4,742 4,662,319
Green Tree Home Improvement
Loan Trust,
Series 97-A, Class HEM2
7.90% 03/15/28 5,150 4,773,406
Keycorp Student Loan Trust,
Series 95-B, Class A
6.85%** 09/27/24 6,275 6,272,069
Puget Power Conservation
Grantor Trust,
Series 97-1, Class A
6.23% 07/11/02 3,221 3,209,980
Railcar Leasing LLC, Series 97-1,
Class A1
6.75% 07/15/06 9,528 9,463,084
Sears Credit Account Master Trust,
Series 00, Class 1A
7.25% 11/15/07 2,910 2,944,556
The Money Store Business Loan
Backed Securities,
Series 97-1, Class A
7.40%** 04/15/28 5,383 5,375,726
Toyota Auto Receivables
Owner Trust,
Series 99-A, Class A3
6.15% 08/16/04 225 223,488
------------
TOTAL ASSET BACKED SECURITIES
(Cost $106,086,555) 103,820,015
------------
CORPORATE BONDS -- 21.1%
AIR TRANSPORTATION -- 0.1%
Continental Airlines
7.06% 03/15/11 2,045 1,969,591
------------
FINANCE -- 7.8%
American General Institutional Capital
7.57% 12/01/45 3,425 3,053,070
Auburn Hills Trust
12.00% 05/01/20 5,205 7,422,850
Par
Maturity (000) Value
--------- ------- ------------
CORPORATE BONDS (CONTINUED)
FINANCE (CONTINUED)
Bank of America Corp.
7.80% 02/15/10 $ 3,275 $ 3,376,270
CSW Investments
6.95% 08/01/01 7,705 7,684,351
Donaldson, Lufkin and Jenrette, Inc.
7.07% 12/13/02 10,250 10,271,517
ERAC USA Finance Co.
8.25% 05/01/05 5,610 5,716,127
FMR Corp.
7.57% 06/15/29 6,455 6,270,406
Ford Motor Credit Co.
7.60% 08/01/05 27,875 28,106,497
5.80% 01/12/09 7,040 6,247,416
7.37% 10/28/09 6,175 6,053,846
Goldman Sachs Group L.P.
6.25% 02/01/03 6,030 5,898,504
Great Western Finance
8.20% 02/01/27 5,000 4,412,105
Larwin Group - Participation in
Asset Exchange
8.00% 12/01/09 13 12,515
Lehman Brothers Holdings, Inc.
6.62% 02/05/06 1,450 1,400,551
Merrill Lynch & Co., Inc.
5.75% 11/04/02 5,165 5,052,765
MidAmerican Funding LLC
6.92% 03/01/29 8,050 7,031,514
Morgan Stanley, Dean Witter & Co.
7.12% 01/15/03 9,410 9,470,375
Provident Companies, Inc.
7.40% 03/15/38 4,430 3,338,137
Riggs Capital Trust
8.62% 12/31/26 400 310,780
Riggs Capital Trust II Preferred
Securities, Series C
8.87% 03/15/27 2,000 1,571,251
Sun Life Canada Capital Trust
8.52% 05/29/49 4,630 4,166,440
Washington Mutual Capital, Inc.
8.37% 06/01/27 1,250 1,128,670
Wells Fargo Capital
7.73% 12/01/26 3,490 3,165,671
Yorkshire Power Finance
6.49% 02/25/08 2,350 2,134,157
------------
133,295,785
------------
INDUSTRIAL -- 3.2%
Atlantic Richfield
9.87% 03/01/16 4,885 6,225,517
Bowater, Inc.
9.00% 08/01/09 4,000 4,165,936
DaimlerChrysler North America Holdings
6.90% 09/01/04 1,700 1,693,625
Dresdner Funding Trust I
8.15% 06/30/31 2,025 1,815,882
Hyder PLC.
6.75% 12/15/04 6,500 5,846,100
International Paper Co., Series 144A
8.00% 07/08/03 16,800 17,143,628
Monsanto Co.
6.50% 12/01/18 2,080 1,885,650
Rohm & Haas Co.
7.85% 07/15/29 3,750 3,703,807
Tyco Intl. Group Corp., S.A.
5.87% 11/01/04 2,910 2,781,797
See accompanying notes to financial statements.
39
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
CORPORATE BONDS (CONTINUED)
INDUSTRIAL (CONTINUED)
Union Carbide
7.87% 04/01/23 $ 5,345 $ 5,350,554
Yosemite Securities Trust I
8.25% 11/15/04 4,550 4,618,971
--------------
55,231,467
--------------
INSURANCE -- 2.0%
AFC Capital Trust I
8.20% 02/03/27 5,850 5,403,519
Allstate Corp.
7.87% 05/01/05 3,100 3,197,548
AON Capital Trust A
8.20% 01/01/27 10,000 9,315,625
Equitable Cos., Inc.
9.00% 12/15/04 5,555 5,887,856
Farmers Insurance Exchange
8.62% 05/01/24 2,125 2,090,314
Liberty Mutual Insurance Co.
7.69% 10/15/47 5,490 4,008,913
Lumbermen's Mutual Casualty Co.
8.30% 12/01/37 2,560 2,046,815
Royal & Sun Alliance Insurance
8.95% 10/15/29 2,280 2,257,703
--------------
34,208,293
--------------
TELECOMMUNICATIONS -- 1.9%
Clear Channel Communications
6.50% 07/07/05 8,430 7,456,329
Deutsche Telekom International Finance
8.25% 06/15/30 5,980 6,161,792
Koninklijke KPN NV
8.37% 04/01/01 2,100 2,099,907
8.00% 10/01/10 4,225 4,227,900
Time Warner, Inc.
9.12% 01/15/13 2,085 2,287,885
US West Communications
7.20% 11/01/04 10,760 10,771,470
--------------
33,005,283
--------------
TRANSPORTATION -- 0.2%
Federal Express Corp.
6.72% 01/15/22 2,954 2,759,040
--------------
UTILITY -- 1.2%
Avon Energy Partnership
6.73% 12/11/02 1,100 1,077,615
Calpine Corp.
8.25% 08/15/05 3,910 3,914,888
Israel Electric Corp. Ltd.
7.12% 07/15/05 1,915 1,888,803
Limestone Electron Trust, Sr. Notes,
Series 144A
8.62% 03/15/03 10,000 10,181,854
TXU Eastern Funding Co.
6.15% 05/15/02 4,345 4,248,130
--------------
21,311,290
--------------
YANKEE -- 4.7%
Abbey National Capital Trust I
8.96% 12/29/49 2,600 2,600,000
Buoni Poliennali del Tesoro
5.00% 06/15/03 28,695 25,149,019
Empresa Electrica Pehuenche
7.30% 05/01/03 11,000 10,808,197
HSBC Capital Funding
10.17%** 12/31/49 2,140 2,321,900
Par/Shares
Maturity (000) Value
--------- ------- ------------
CORPORATE BONDS (CONTINUED)
YANKEE (CONTINUED)
Norsk Hydro ASA
7.25% 09/23/27 $ 4,880 $ 4,484,866
Pemex Finance Ltd.
9.14% 08/15/04 4,410 4,547,548
9.03% 02/15/11 3,965 4,073,522
Pinnacle Partners
8.83% 08/15/04 7,075 7,154,594
Province of Manitoba
7.50% 02/22/10 1,690 1,741,756
State of Qatar
9.75% 06/15/30 2,560 2,618,712
Telefonica Europe BV
7.35% 09/15/05 8,350 8,350,000
United Mexican States
11.37% 09/15/16 2,460 2,865,900
6.25% 12/31/19 4,455 3,967,734
--------------
80,683,748
--------------
TOTAL CORPORATE BONDS
(Cost $366,267,826) 362,464,497
--------------
TAXABLE MUNICIPAL BONDS -- 0.7%
Los Angeles County Pension
Obligation Revenue Bond,
Series 95D
6.97% 06/30/08 7,355 7,327,934
New Jersey Economic
Development Authority State
Pension Funding Zero Coupon
Revenue Bond, Series 97B
7.56%*** 02/15/16 1,600 521,600
7.59%*** 02/15/17 575 173,167
7.21%*** 02/15/18 14,500 4,037,670
7.62%*** 02/20-02/21 1,010 233,422
7.63%*** 02/22-02/23 815 162,817
--------------
TOTAL TAXABLE MUNICIPAL BONDS
(Cost $13,553,404) 12,456,610
--------------
PREFERRED STOCK -- 0.5%
Centaur Funding Corp.,
Cumulative 144A
9.08%
(Cost $8,000,000) 8,000 7,972,152
--------------
SHORT TERM INVESTMENTS -- 0.1%
Federal Home Loan Bank
Discount Notes
6.28% 10/02/00 1,900 1,899,669
Galileo Money Market Fund 500 499,580
--------------
TOTAL SHORT TERM INVESTMENTS
(Cost $2,399,249) 2,399,249
--------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $1,735,391,145*) 100.0% $1,714,192,525
==============
REVERSE REPURCHASE
AGREEMENTS -- (14.2%)
Barclays Capital
(Agreement dated 09/20/00 to be
repurchased at $14,772,018. Collateralized by
$14,689,500 U.S. Treasury Notes (CPI) 3.88%
due 04/15/29. The value of the collateral is
$14,887,886.)
6.46% 10/04/00 14,735 (14,764,085)
See accompanying notes to financial statements.
40
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
MANAGED INCOME PORTFOLIO (CONCLUDED)
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
REVERSE REPURCHASE
AGREEMENTS (CONTINUED)
Barclays Capital
(Agreement dated 09/18/00 to be
repurchased at $33,243,573.
Collateralized by $22,393,140 U.S.
Treasury Notes (CPI) 3.63% due
04/15/28 and $8,725,000 U.S.
Treasury Notes 12.75% due 11/15/10.
The value of the collateral is
$33,405,752.)
6.45% 10/18/00 $33,066 $ (33,142,860)
Greenwich Capital Markets
(Agreement dated 09/28/00 to be
repurchased at $96,214,491.
Collateralized by $95,550,000 U.S.
Treasury Notes 6.13% due 08/31/02.
The value of the collateral is
$96,243,401.)
6.30% 10/02/00 96,147 (96,197,665)
Lehman Brothers
(Agreement dated 09/19/00 to be
repurchased at $10,179,783.
Collateralized by $8,000,000 U.S.
Treasury Bonds 8.50% due 02/15/20.
The value of the collateral is
$10,223,852.)
6.42% 10/11/00 10,140 (10,161,700)
Paribas Capital Markets
(Agreement dated 09/20/00 to be
repurchased at $30,192,909.
Collateralized by $13,800,000 U.S.
Treasury Bonds 14.00% due 11/15/11 and
$10,000,000 U.S. Treasury Notes 5.88%
due 11/15/04. The value of the
collateral is $30,250,672.)
6.45% 10/13/00 30,069 (30,128,260)
Paribas Capital Markets
(Agreement dated 09/29/00 to be
repurchased at $7,268,242.
Collateralized by $5,000,000 U.S.
Treasury Bonds 10.63% due 08/15/15. The
value of the collateral is $7,250,543.)
6.47% 10/13/00 7,250 (7,252,606)
Salomon Smith Barney
(Agreement dated 09/19/00 to be
repurchased at $16,539,497.
Collateralized by $13,000,000 U.S.
Treasury Bonds 8.50% due 02/15/20. The
value of the collateral is $16,613,759.)
6.45% 10/10/00 16,478 (16,512,927)
-------------
TOTAL REVERSE REPURCHASE
AGREEMENTS
(Cost $207,884,531) $(208,160,103)
=============
---------------------
* Cost for Federal income tax purposes is $1,737,216,847. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 10,886,574
Gross unrealized depreciation (33,910,896)
------------
$(23,024,322)
============
** Rates shown are the rates as of September 30, 2000.
*** Rates shown are the effective yields as of September 30, 2000.
+ Securities with a market value of $208,875,865 have been pledged as
collateral for reverse repurchase agreements.
++ Securities pledged as collateral with a value of $3,714,225 on 1,562 short
and 201 long U.S. Treasury Notes futures contracts, 233 long Euro-Bobl
futures contracts and 202 long Euro-Bond futures contracts expiring December
2000. The value of such contracts on September 30, 2000 was $216,698,669,
thereby resulting in an unrealized loss of $188,480.
See accompanying notes to financial statements.
41
<PAGE>
BLACKROCK FUNDS
STATEMENT OF ASSETS AND LIABILITIES
MANAGED INCOME PORTFOLIO
SEPTEMBER 30, 2000
ASSETS
Investments at value (Cost $1,735,391,145) ............. $1,714,192,525
Collateral received for securities loaned .............. 37,654,320
Collateral received for swap contracts ................. 642,335
Interest receivable .................................... 17,531,716
Interest receivable on interest rate swaps ............. 41,091
Principal receivable ................................... 1,332
Investments sold receivable ............................ 69,220,929
Capital shares sold receivable ......................... 1,366,684
Prepaid expenses ....................................... 10,538
Futures margin receivable .............................. 57,803
Unrealized appreciation on interest rate swaps ......... 483,763
--------------
TOTAL ASSETS .................................... 1,841,203,036
--------------
LIABILITIES
Payable upon return of securities loaned ............... 37,654,320
Payable upon termination of swap contracts ............. 642,335
Reverse repurchase agreements payable .................. 208,160,103
Investments purchased payable .......................... 119,153,616
Capital shares redeemed payable ........................ 2,307,629
Distributions payable .................................. 7,615,865
Advisory fees payable .................................. 428,668
Administrative fees payable ............................ 253,447
Transfer agent fees payable ............................ 34,496
Other accrued expenses payable ......................... 231,912
Futures margin payable ................................. 124,437
Unrealized depreciation on interest rate swaps ......... 348,687
--------------
TOTAL LIABILITIES ............................... 376,955,515
--------------
NET ASSETS (Applicable to 116,818,489 Institutional
shares, 28,646,014 Service shares, 1,707,019
Investor A shares, 487,197 Investor B shares and
3,091 Investor C shares outstanding) $1,464,247,521
==============
NET ASSET VALUE AND REDEMPTION PRICE PER INSTITUTIONAL, SERVICE
AND INVESTOR A SHARE ($1,459,385,577 / 147,171,522) $ 9.92
======
OFFERING PRICE PER INSTITUTIONAL AND SERVICE SHARE $ 9.92
======
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($9.92 / 0.955 ) $10.39
======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($4,831,326 / 487,197) $ 9.92
======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($30,618 / 3,091) $ 9.91
======
See accompanying notes to financial statements.
42
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
INTERNATIONAL BOND PORTFOLIO
Par**
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
FOREIGN BONDS -- 57.3%
CANADA -- 1.1%
Canada Trust Company Mortgage
5.63% 01/01/02 1,715 $ 1,131,075
------------
DENMARK -- 19.5%
City of Copenhagen
6.25% 03/15/01 33,000 3,906,685
Kingdom of Denmark
8.00% 03/15/06 5,000 654,051
Nykredit Corp.
4.00%+ 01/01/01 32,000 3,763,508
Realkredit Danmark
4.00% 01/01/01 3,000 352,829
8.00%+ 10/01/32 30,800 3,639,499
Totalkredit
8.00%+ 10/01/32 40,000 4,726,622
Unikredit Realkredit
8.00%+ 10/01/32 32,000 3,781,298
------------
20,824,492
------------
FRANCE -- 3.4%
Government of France
5.50% 10/25/07 0 438
Government of France (TIP)
3.40%+ 07/25/29 4,250 3,626,729
------------
3,627,167
------------
GERMANY -- 0.7%
Dresdner Funding Trust II
5.79% 06/30/11 1,000 792,569
------------
GREECE -- 6.1%
Hellenic Republic
5.90% 02/11/03 2,500,000 6,524,065
------------
ITALY -- 5.8%
Buoni Poliennali del Tes
6.75% 07/01/07 0 348
5.25%+ 11/01/29 5,500 4,398,097
Tecnost International
6.67%*** 06/23/04 2,000 1,793,354
------------
6,191,799
------------
JAPAN -- 1.4%
Japan Government
2.20% 06/22/20 170,000 1,516,911
------------
SWEDEN -- 12.7%
AB Spintab
6.25% 09/18/02 32,500 3,439,200
Nordic Investment Bank
6.00% 08/01/03 29,800 3,137,860
Stadshypotek AB
9.00% 09/19/01 2,000 215,658
9.00% 09/19/01 30,000 3,234,877
Statens Bostadsfinansier
6.50% 09/18/02 32,500 3,464,099
------------
13,491,694
------------
Par
Maturity (000) Value
--------- ------- ------------
FOREIGN BONDS (CONTINUED)
UNITED KINGDOM -- 6.6%
Abbey National Treasury Services
8.00% 04/02/03 600 $ 916,729
Bayerische Landesbank Girozentrale
7.87% 12/07/06 1,100 1,735,072
Federal National Mortgage Association
Global Bond
6.87%++ 06/07/02 2,500 3,733,397
Halifax Building Society PLC
6.50% 02/16/04 450 665,591
------------
7,050,789
------------
TOTAL FOREIGN BONDS
(Cost $64,988,017) 61,150,561
------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 0.2%
U.S. Treasury Notes
6.50%
(Cost $163,781) 10/15/06 $ 160 164,450
------------
CORPORATE BONDS -- 7.0%
Deutsche Telekom International
Finance
7.75% 06/15/05 1,200 1,212,000
Ford Motor Credit Co.
7.60%+ 08/01/05 2,000 2,016,610
Republic of Poland
4.00%*** 10/27/24 3,340 2,254,500
United Mexican States
8.50% 02/01/06 2,000 1,991,000
------------
TOTAL CORPORATE BONDS
(Cost $7,352,717) 7,474,110
------------
ASSET BACKED SECURITIES -- 30.5%
Arcadia Automobile
Receivables Trust,
Series 97-B, Class A5
6.70% 02/15/05 3,000 2,993,438
Chase Credit Card Master Trust,
Series 98-6, Class A
6.88%*** 08/15/04 3,500 3,511,620
Chase Manhattan Auto
Owner Trust,
Series 92-4, Class A1
5.80% 02/17/03 4,000 3,968,125
Chase Manhattan Grantor Trust,
Series 96-B, Class A
6.61% 09/15/02 820 819,961
First Security Auto Owners Trust,
Series 00-2, Class A3
6.83% 07/15/04 2,500 2,503,906
See accompanying notes to financial statements.
43
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
INTERNATIONAL BOND PORTFOLIO (CONCLUDED)
Par**
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
ASSET BACKED SECURITIES (CONTINUED)
First USA Credit Card
Master Trust,
Series 95-2, Class A
6.86%*** 10/16/00 $ 3,000 $ 3,008,906
Ford Credit Auto Owner Trust,
Series 00-E, Class A4
6.74% 06/15/04 2,750 2,752,578
Ford Credit Auto Owner Trust,
Series 99-D, Class A4
6.40% 10/15/02 2,000 1,993,750
MBNA Master Credit Card Trust,
Series 95-J, Class A
6.85%*** 04/15/05 3,500 3,513,125
Premier Auto Trust,
Series 99-1, Class A3
5.69% 11/08/02 3,000 2,978,438
Standard Credit Card Master Trust,
Series 94-4, Class A
8.25% 11/07/03 3,000 3,043,594
Student Loan Marketing Association
Student Loan Trust,
Series 99-3, Class A2
6.47%*** 07/25/12 1,500 1,498,828
------------
32,586,269
------------
TOTAL ASSET BACKED SECURITIES
(Cost $32,457,669) 32,586,269
------------
SHORT TERM INVESTMENTS -- 5.0%
Federal Home Loan Bank Discount Notes
6.28%
(Cost $5,299,075) 10/02/00 5,300 5,299,075
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $110,261,259*) 100.0% $106,674,465
============
REVERSE REPURCHASE AGREEMENTS -- (27.3%)
Lehman Brothers
(Agreement dated 08/31/00 to be
repurchased at $1,609,500.
Collateralized by $2,000,000 Ford Motor
Credit 7.60% due 08/01/05. The value of
the collateral is $2,042,218.)
6.68% 10/02/00 $1,600 (1,609,500)
Salomon Smith Barney
(Agreement dated 08/31/00 to be
repurchased at $3,634,993.
Collateralized by $4,250,000 Government
of France Bonds 3.40% due 07/28/29. The
value of the collateral is $4,077,516.)
4.75% 10/02/00 3,620 (3,634,515)
Par
Maturity (000) Value
--------- ------- ------------
REVERSE REPURCHASE AGREEMENTS (CONTINUED)
Salomon Smith Barney
(Agreement dated 09/29/00 to be
repurchased at $15,678,553.
Collateralized by $32,000,000 Nykredit
Corp. 4.00% due 01/01/01, $30,700,000
Realkredit Danmark 8.00% due 10/01/32,
$39,900,000 Totalkredit 8.00% due
10/01/32 and $32,000,000 Unikredit
Realkredit 8.00% due 10/01/32. The
value of the collateral is $16,177,999.)
6.00% 10/06/00 $15,660 $(15,665,506)
Salomon Smith Barney
(Agreement dated 09/13/00 to be
repurchased at $4,575,938.
Collateralized by $5,500,000 Buoni
Poliennali del Tes 5.25% due 11/01/29.
The value of the collateral is
$4,508,316.)
4.72% 11/10/00 4,541 (4,552,120)
Salomon Smith Barney
(Agreement dated 09/28/00 to be
repurchased at $3,667,218.
Collateralized by $4,250,000 Government
of France Bond 3.40% due 07/25/29. The
value of the collateral is $4,055,175.)
4.91% 12/06/00 3,635 (3,634,993)
------------
TOTAL REVERSE REPURCHASE
AGREEMENTS
(Cost $29,058,281) $(29,096,634)
============
------------------------------
* Also cost for Federal income tax purposes. The gross unrealized appreciation
(depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 838,648
Gross unrealized depreciation (4,425,442)
-----------
$(3,586,794)
===========
** In local currency.
*** Rates shown are the effective yields as of September 30, 2000.
+ Securities with a market value of $30,861,224 have been pledged as
collateral for reverse repurchase agreements.
++ Securities pledged as collateral with a value of $1,477,648 on 116 short
U.S. Treasury Notes futures contracts, 125 long Euro-Bobl futures contracts,
50 long Euro-Bond futures contracts, 130 long Euro-Euribor futures
contracts, 15 long JPN 10Y Bonds futures contracts, 110 long Euro-Schatz
futures contracts, 110 long Euro-Swiss Futures contracts expiring December
2000 and 30 short Euro-Bond future contracts expiring March 2001. The value
of such contracts on September 30, 2000 was $117,008,079, thereby resulting
in an unrealized gain of $138,108.
See accompanying notes to financial statements.
44
<PAGE>
BLACKROCK FUNDS
STATEMENT OF ASSETS AND LIABILITIES
INTERNATIONAL BOND PORTFOLIO
SEPTEMBER 30, 2000
ASSETS
Investments at value (Cost $110,261,259) ............... $106,674,465
Cash denominated in foreign currencies (Cost $951,796) . 959,876
Cash ................................................... 41,821
Interest receivable .................................... 1,494,122
Investments sold receivable ............................ 5,552,693
Capital shares sold receivable ......................... 140,999
Prepaid expenses ....................................... 5,406
Futures margin receivable .............................. 69,094
Net unrealized appreciation on forward foreign
currency contracts ................................... 42,092
------------
TOTAL ASSETS .................................... 114,980,568
------------
LIABILITIES
Reverse repurchase agreements payable .................. 29,096,634
Capital shares redeemed payable ........................ 274,973
Distributions payable .................................. 392,949
Advisory fees payable .................................. 39,702
Administrative fees payable ............................ 16,462
Transfer agent fees payable ............................ 6,908
Other accrued expenses payable ......................... 70,116
Futures margin payable ................................. 16,284
Net unrealized depreciation on forward foreign
currency contracts ................................... 856,878
------------
TOTAL LIABILITIES ............................... 30,770,906
------------
NET ASSETS (Applicable to 6,469,976 Institutional shares,
382,719 Service shares, 508,218 Investor A shares,
307,045 Investor B shares and 208,310 Investor C
shares outstanding) $ 84,209,662
============
NET ASSET VALUE AND REDEMPTION PRICE PER
INSTITUTIONAL, SERVICE AND INVESTOR A
SHARE ($78,699,222 / 7,360,913) $10.69
======
OFFERING PRICE PER INSTITUTIONAL AND SERVICE SHARE $10.69
======
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($10.69 / 0.950) $11.25
======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($3,283,191 / 307,045) $10.69
======
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($2,227,249 / 208,310) $10.69
======
See accompanying notes to financial statements.
45
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO
Number of
AS OF SEPTEMBER 30, 2000 Shares Value
--------- ------------
COMMON STOCKS -- 0.5%
Completel Europe NV 28,000 $ 199,500
Ubiquitel, Inc. 50,000 450,000
------------
TOTAL COMMON STOCKS
(Cost $952,460) 649,500
------------
PREFERRED STOCK -- 6.5%
Adelphia Business Solutions, Inc.,
Series B (PIK) 12.875% 3,667 2,457,092
DIVA Systems Corp. Warrants 4,500 22,500
Key Energy Services, Inc. Warrants 1,000 7,000
Mattress Discounters Co. Warrants 1,500 15,000
Nextel Communications, Inc., Cumulative
Series E (PIK) 11.125% 2,412 2,328,534
Nextlink Communications, Inc.
(PIK) 14.00% 1,219 54,863
PF.Net Communications Warrants 1,000 236,000
R&B Falcon Corp. (PIK) 13.875% 2,360 3,021,557
Ubiquitel, Inc. Warrants 30,000 232,500
------------
TOTAL PREFERRED STOCK
(Cost $8,844,780) 8,375,046
------------
Par
Maturity (000)
--------- -------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 0.6%
U.S. Treasury Notes
6.12% 08/15/07 $ 410 414,485
4.75% 11/15/08 400 370,250
------------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Cost $780,195) 784,735
------------
CORPORATE BONDS -- 91.8%
ELECTRONICS -- 2.9%
Amkor Technologies, Inc.
10.50% 05/01/09 500 508,750
Amkor Technologies, Inc., Sr. Notes
9.25% 05/01/06 1,000 990,000
Condor Systems, Inc., Series 144A
11.87% 05/01/09 1,000 660,000
DIVA Systems Corp., Sr. Discount Notes,
Series B (STEP)
15.64%*** 03/01/08 1,500 690,000
Knowles Electronics, Inc., Series 144A
13.12% 10/15/09 1,000 940,000
------------
3,788,750
------------
FINANCIAL -- 3.1%
Ameriserve Finance, Inc., Series 144A
12.00% 09/15/06 500 115,000
Larwin Group - Participation in Asset
Exchange
7.00% 12/01/20 4 4,310
Madison River Capital LLC, Sr. Notes
13.25% 03/01/10 2,000 1,600,000
Orion Power Hldgs., Inc., Sr. Notes,
Series 144A
12.00%+ 05/01/10 1,500 1,605,000
PX Escrow Corp., Sr. Discount Notes
(STEP)
18.23%*** 02/01/06 2,000 700,000
------------
4,024,310
------------
Par
Maturity (000) Value
--------- ------- ------------
CORPORATE BONDS (CONTINUED)
INDUSTRIAL -- 30.2%
Allied Waste North America, Inc., Series B
10.00%+ 08/01/09 $2,000 $ 1,735,000
Amtran, Inc.
10.50% 08/01/04 1,000 930,000
Bio-Rad Laboratories, Inc., Sr. Sub. Notes
11.62% 02/15/07 1,000 1,050,000
Calpine Corp., Sr. Notes
9.25% 02/01/04 550 549,928
D.R. Horton, Inc.
10.50% 04/01/05 1,500 1,552,500
D.R. Horton, Inc., Sr. Notes
10.00% 04/15/06 250 252,500
Doman Industries Ltd., Sr. Notes
8.75%+ 03/15/04 2,000 1,440,000
Fountain View, Inc., Series B
11.25% 04/15/08 1,000 250,000
Golden Northwest Aluminum
First Mortgage Notes
12.00% 12/15/06 2,750 2,805,000
Hollywood Entertainment Co.,
Sr. Sub. Notes, Series B
10.62% 08/15/04 1,020 785,400
Hosiery Corp. of America, Inc.,
Sr. Sub. Notes
13.75% 08/01/02 4,000 3,440,000
Kasper A.S.L. Ltd., Sr. Notes
13.00% 03/31/04 1,500 855,000
Knology Hldgs., Inc., Sr.
Discount Notes (STEP)
14.33%*** 10/15/07 4,000 1,920,000
Lyondell Chemical Corp., Sr. Sub. Notes
10.87% 05/01/09 2,000 1,945,000
National Equipment Services Co., Series D
10.00% 11/30/04 2,000 1,500,000
Nebco Evans Hldg. Co.,
Sr. Discount Notes (STEP)
17.25%*** 07/15/07 800 1,000
Oakwood Homes Corp., Sr. Notes
8.12% 03/01/09 250 81,875
Oxford Health Plans, Sr. Notes
11.00% 05/15/05 2,000 2,120,000
Phoenix Color Corp., Sr. Sub. Notes
10.37% 02/01/09 500 421,250
Pogo Producing Co., Sr. Sub.
Notes, Series B
10.37% 02/15/09 1,500 1,567,500
Polaroid Corp., Sr. Notes
11.50% 02/15/06 1,000 1,037,500
Railamerica Transport Corp.,
Sr. Sub. Notes, Series 144A
12.87% 08/15/10 1,000 945,000
Repap New Brunswick Inc., Sr. Notes
11.50% 06/01/04 1,200 1,338,000
Revlon Consumer Products, Sr. Sub. Notes
8.62% 02/01/08 2,000 1,180,000
St. John Knits Intl., Inc.
12.50% 07/01/09 1,000 970,000
The AES Corp., Sr. Notes
9.37% 09/15/10 1,000 1,010,000
The Ryland Group, Inc., Sr. Notes
9.75% 09/01/10 750 746,250
United Industries Corp.,
Sr. Sub. Notes, Series B
9.87% 04/01/09 1,250 562,500
See accompanying notes to financial statements.
46
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO (CONTINUED)
Par
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
CORPORATE BONDS (CONTINUED)
INDUSTRIAL (CONTINUED)
Veritas DGC, Inc., Sr. Notes
9.75% 10/15/03 $2,025 $ 2,055,375
Wabtec Corp., Sr. Notes
9.37% 06/15/05 1,500 1,447,500
Waterford Gaming LLC,
Sr. Notes, Series 144A
9.50% 03/15/10 1,991 1,961,135
Woods Equipment Co., Series B
12.00% 07/15/09 1,000 740,000
------------
39,195,213
------------
OIL & GAS -- 11.9%
CMS Energy and Atlantic
Methanol Co., Series 144A
10.87% 12/15/04 2,500 2,487,500
Grey Wolf, Inc., Series C
8.87%+ 07/01/07 3,000 2,925,000
Grey Wolf, Inc., Sr. Notes
8.87% 07/01/07 500 487,500
Key Energy Services, Inc., Series B
14.00% 01/15/09 500 568,750
Nuevo Energy Co., Sr. Sub. Notes,
Series 144A
9.37% 10/01/10 2,000 2,000,000
R&B Falcon Corp., Sr. Notes
12.25% 03/15/06 2,000 2,380,000
Range Resources Corp., Sr. Sub. Notes
8.75% 01/15/07 1,000 950,000
Swift Energy Co., Sr. Sub. Notes
10.25% 08/01/09 1,550 1,592,625
Triton Energy Ltd., Sr. Notes
9.25% 04/15/05 2,000 2,030,000
------------
15,421,375
------------
RETAIL -- 2.8%
Mattress Discounters Corp.,
Series B
12.62% 07/15/07 1,500 1,387,500
Sonic Automotive, Inc., Series B
11.00% 08/01/08 2,500 2,250,000
------------
3,637,500
------------
SPECIAL PURPOSE -- 12.5%
Boyd Gaming Corp.
9.25% 10/01/03 500 495,000
Concentra Operating Corp.
13.00% 08/15/09 2,000 1,760,000
Felcor Lodging LP, Sr. Notes,
Series 144A
9.50% 09/15/08 1,000 996,250
Fox Family Worldwide, Inc., Sr. Notes
9.25% 11/01/07 2,000 1,925,000
Hanger Orthopedic Group, Sr. Sub. Notes
11.25% 06/15/09 500 447,500
Lifepoint Hospitals Hldg., Inc., Series B
10.75% 05/15/09 1,500 1,575,000
MGM Grand, Inc., Sr. Sub Notes
9.75% 06/01/07 1,500 1,548,750
National Wine & Spirits Inc., Sr. Notes
10.12% 01/15/09 1,250 1,187,500
Premier Parks, Inc., Sr. Notes
9.25% 04/01/06 1,000 940,000
RBF Finance Co.
11.37% 03/15/09 1,000 1,155,000
Par
Maturity (000) Value
--------- ------- ------------
CORPORATE BONDS (CONTINUED)
SPECIAL PURPOSE (CONTINUED)
Station Casino, Inc., Sr. Sub. Notes,
Series 144A
9.87% 07/01/10 $1,500 $ 1,507,500
Unilab Finance Corp., Sr. Sub. Notes
12.75% 10/01/09 1,500 1,633,125
Zais Investment Grade Ltd., Series 144A
9.95% 09/23/14 1,000 1,018,300
------------
16,188,925
------------
TELECOMMUNICATIONS -- 28.4%
Adelphia Communications Corp.,
Sr. Notes, Series B
8.12% 07/15/03 3,000 2,850,000
Alliance Atlantis Communications, Inc.,
Sr. Sub. Notes
13.00% 12/15/09 1,500 1,552,500
British Sky Broadcasting
8.20% 07/15/09 1,000 937,370
Clearnet Communications, Inc.,
Sr. Discount Notes (STEP)
9.44%*** 12/15/05 50 52,500
Fairpoint Communications, Inc.,
Sr. Sub. Notes
12.50% 05/01/10 2,000 1,950,000
Flag Telecommunications Hldg. Ltd.,
Sr. Notes
11.62% 03/30/10 1,000 900,000
Hyperion Telecommunications, Inc.,
Sr. Notes, Series B
12.25%*** 09/01/04 1,350 1,255,500
James Cable Partners LP,
Sr. Notes, Series B
10.75% 08/15/04 1,000 850,000
MGC Communications, Inc., Sr. Notes
13.00% 04/01/10 2,750 1,650,000
Nextel Communcations, Inc., Sr. Notes
12.00%+ 11/01/08 2,000 2,130,000
Nextel International, Inc., Sr. Notes,
Series 144A
12.75% 08/01/10 1,000 975,000
Nextel Partners, Inc., Sr. Notes,
Series 144A
11.00% 03/15/10 1,000 1,005,000
Nextlink Communications, Inc.,
Sr. Discount Notes (STEP)
12.15%*** 12/01/09 3,017 1,568,840
Nextlink Communications, Inc., Sr. Notes
12.50% 04/15/06 1,000 980,000
Northeast Optic Network, Inc., Sr. Notes
12.75% 08/15/08 2,000 1,720,000
Partner Communications Co., Ltd.
Sr. Sub. Notes
13.00% 08/15/10 1,000 950,000
PF.Net Communications, Inc., Sr. Notes,
Series 144A
13.75% 05/15/10 1,000 735,000
PSInet, Inc., Sr. Notes
10.50% 12/01/06 2,500 1,600,000
RSL Communications Ltd.
12.25% 11/15/06 2,000 360,000
Sinclair Broadcast Group, Sr. Sub Notes
10.00% 09/30/05 200 199,000
Spectrasite Hldgs., Inc., Sr.
Discount Notes (STEP)
13.96%*** 07/15/08 2,000 1,340,000
See accompanying notes to financial statements.
47
<PAGE>
BLACKROCK FUNDS
SCHEDULE OF INVESTMENTS
HIGH YIELD BOND PORTFOLIO (CONCLUDED)
Par/Shares
AS OF SEPTEMBER 30, 2000 Maturity (000) Value
--------- ------- ------------
CORPORATE BONDS (CONTINUED)
TELECOMMUNICATIONS (CONTINUED)
Teligent, Inc., Sr. Notes
11.50% 12/01/07 $ 2,000 $ 860,000
Ubiquitel Operating Co.,
Series 144A (STEP)
12.81%*** 04/15/10 3,000 1,447,500
United Pan-Europe Communications,
Series B
11.25%+ 02/01/10 4,000 3,480,000
Voicestream Wireless Hldg. Co.,
Sr. Notes
10.37% 11/15/09 2,000 2,200,000
Williams Communication Group, Inc.,
Sr. Notes, Series 144A
11.70% 08/01/08 1,000 952,500
Worldwide Fiber, Inc., Sr. Notes
12.50% 12/15/05 1,500 1,432,500
12.00% 08/01/09 1,000 880,000
------------
36,813,210
------------
TOTAL CORPORATE BONDS
(Cost $130,587,469) 119,069,283
------------
SHORT TERM INVESTMENTS -- 0.6%
Federal Home Loan Bank
Discount Notes
6.28% 10/02/00 700 699,878
Galileo Money Market Fund 59 58,927
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $758,805) 758,805
------------
TOTAL INVESTMENTS IN SECURITIES
(Cost $141,923,710*) 100.0% $129,637,369
============
-------------------
* Cost for Federal income tax purposes is $142,146,511. The gross unrealized
appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation $ 2,376,666
Gross unrealized depreciation (14,885,808)
------------
$(12,509,142)
============
*** Rates shown are the effective yields as of September 30, 2000.
+ Securities with a market value of $14,723,335 have been pledged as
collateral for reverse repurchase agreements.
INVESTMENT ABBREVIATIONS
CPI Consumer Price Index
IO Interest Only
PIK Payment In Kind
PO Principal Only
STEP Step Bonds
See accompanying notes to financial statements.
48
<PAGE>
BLACKROCK FUNDS
STATEMENT OF ASSETS AND LIABILITIES
HIGH YIELD BOND PORTFOLIO
SEPTEMBER 30, 2000
ASSETS
Investments at value (Cost $141,923,710) ............... $129,637,369
Collateral received for securities loaned .............. 9,999,638
Interest receivable .................................... 3,802,044
Investments sold receivable ............................ 5,086,701
Capital shares sold receivable ......................... 264,052
Prepaid expenses ....................................... 17,665
------------
TOTAL ASSETS .................................... 148,807,469
------------
LIABILITIES
Payable upon return of securities loaned ............... 9,999,638
Investments purchased payable .......................... 3,920,677
Reverse repurchase agreements payable .................. 11,671,355
Capital shares redeemed payable ........................ 157,987
Distributions payable .................................. 1,205,782
Advisory fees payable .................................. 34,891
Administrative fees payable ............................ 23,557
Transfer agent fees payable ............................ 3,475
Other accrued expenses payable ......................... 158,731
------------
TOTAL LIABILITIES ............................... 27,176,093
------------
NET ASSETS (Applicable to 12 BlackRock shares, 8,169,120
Institutional shares, 4,814 Service shares, 571,334
Investor A shares, 4,476,291 Investor B shares and
421,458 Investor C shares outstanding) $121,631,376
============
NET ASSET VALUE AND REDEMPTION PRICE PER
BLACKROCK, INSTITUTIONAL, SERVICE, AND
INVESTOR A SHARE ($77,975,909 / 8,745,280) $8.92
=====
OFFERING PRICE PER BLACKROCK, INSTITUTIONAL AND
SERVICE SHARE $8.92
=====
MAXIMUM OFFERING PRICE PER INVESTOR A SHARE
($8.92 / 0.950) $9.39
=====
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 4.5%)
PER INVESTOR B SHARE ($39,897,077 / 4,476,291) $8.91
=====
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
(subject to a maximum contingent
deferred sales charge of 1.0%)
PER INVESTOR C SHARE ($3,758,390 / 421,458) $8.92
=====
See accompanying notes to financial statements.
49
<PAGE>
BLACKROCK FUNDS
STATEMENTS OF OPERATIONSczxczcxczxczcxv
<TABLE>
<CAPTION>
Intermediate
Low Duration Government Intermediate
Bond Bond Bond
FOR THE YEAR ENDED SEPTEMBER 30, 2000 Portfolio Portfolio Portfolio
---------------- ------------- ------------
<S> <C> <C> <C>
Investment Income:
Interest .......................................... $23,472,860 $28,060,289 $51,168,520
Dividends ......................................... -- -- --
----------- ----------- -----------
Total investment income ......................... 23,472,860 28,060,289 51,168,520
----------- ----------- -----------
Expenses:
Investment advisory fee ........................... 1,368,281 1,950,681 3,260,340
Administration fee ................................ 629,409 897,313 1,469,343
Custodian fee ..................................... 74,952 83,402 132,388
Transfer agent fee ................................ 74,070 126,578 191,552
Shareholders servicing fees ....................... 54,128 64,746 47,098
Shareholders processing fees ...................... 42,414 53,837 42,635
Distribution fees ................................. 68,838 11,774 10,568
Legal and audit ................................... 1,707 7,610 11,971
Printing .......................................... 23,619 38,900 72,871
Registration fees and expenses .................... 53,900 38,503 85,617
Trustees' fees and officers' salary ............... 5,205 7,148 9,351
Other ............................................. 21,153 27,332 44,741
----------- ----------- -----------
2,417,676 3,307,824 5,378,475
Less fees waived .................................. (891,819) (829,349) (1,552,852)
----------- ----------- -----------
Total operating expenses ........................ 1,525,857 2,478,475 3,825,623
----------- ----------- -----------
Interest expense .................................. 5,122,159 1,638,791 5,403,635
----------- ----------- -----------
Total expenses .................................. 6,648,016 4,117,266 9,229,258
----------- ----------- -----------
Net investment income ................................ 16,824,844 23,943,023 41,939,262
----------- ----------- -----------
Realized and unrealized gain (loss) on
investments and foreign currency transactions:
Net realized gain (loss) from:
Investment transactions ......................... (1,857,191) (3,365,317) (6,725,852)
Futures and options ............................. (320,141) (867,355) 202,937
Swap contracts .................................. -- 192,250 361,430
Foreign currency and forward
foreign currency transactions ................. (13,055) -- --
----------- ----------- -----------
(2,190,387) (4,040,422) (6,161,485)
----------- ----------- -----------
Change in unrealized appreciation (depreciation) from:
Investments ..................................... 1,766,642 3,698,165 9,205,745
Futures ......................................... 158,469 (8,725) (30,805)
Swap contracts .................................. 18,753 7,378 15,314
Foreign currency and forward
foreign currency transactions ................. 74,854 -- --
----------- ----------- -----------
2,018,718 3,696,818 9,190,254
----------- ----------- -----------
Net gain (loss) on investments and
foreign currency transactions ..................... (171,669) (343,604) 3,028,769
----------- ----------- -----------
Net increase in net assets
resulting from operations ......................... $16,653,175 $23,599,419 $44,968,031
=========== =========== ===========
Core Government
Bond Income GNMA
FOR THE YEAR ENDED SEPTEMBER 30, 2000 Portfolio Portfolio Portfolio
----------- ---------- ----------
<S> <C> <C> <C>
Investment Income:
Interest .......................................... $87,347,881 $3,012,003 $8,196,411
Dividends ......................................... 376,820 -- --
----------- ---------- ----------
Total investment income ......................... 87,724,701 3,012,003 8,196,411
----------- ---------- ----------
Expenses:
Investment advisory fee ........................... 5,908,849 181,931 563,212
Administration fee ................................ 2,583,520 83,688 235,525
Custodian fee ..................................... 200,965 21,989 35,873
Transfer agent fee ................................ 343,876 55,013 32,263
Shareholders servicing fees ....................... 148,875 91,041 4,930
Shareholders processing fees ...................... 125,723 54,625 3,053
Distribution fees ................................. 126,089 228,683 2,457
Legal and audit ................................... 38,968 1,227 2,148
Printing .......................................... 129,905 2,025 35,788
Registration fees and expenses .................... 162,036 19,079 54,503
Trustees' fees and officers' salary ............... 14,296 750 1,823
Other ............................................. 78,810 4,907 16,669
----------- ---------- ----------
9,861,912 744,958 988,244
Less fees waived .................................. (3,190,657) (126,791) (362,060)
----------- ---------- ----------
Total operating expenses ........................ 6,671,255 618,167 626,184
----------- ---------- ----------
Interest expense .................................. 2,756,417 514,361 907,513
----------- ---------- ----------
Total expenses .................................. 9,427,672 1,132,528 1,533,697
----------- ---------- ----------
Net investment income ................................ 78,297,029 1,879,475 6,662,714
----------- ---------- ----------
Realized and unrealized gain (loss) on
investments and foreign currency transactions:
Net realized gain (loss) from:
Investment transactions ......................... (10,176,196) (844,611) (183,554)
Futures and options ............................. 1,996,577 372,654 247,372
Swap contracts .................................. 1,766,811 15,380 --
Foreign currency and forward
foreign currency transactions ................. (29,900) -- --
----------- ---------- ----------
(6,442,708) (456,577) 63,818
----------- ---------- ----------
Change in unrealized appreciation (depreciation) from:
Investments ..................................... 22,323,878 561,967 642,845
Futures ......................................... (441,699) 30,683 10,481
Swap contracts .................................. 1,086,084 2,116 411,929
Foreign currency and forward
foreign currency transactions ................. 3,657 -- --
----------- ---------- ----------
22,971,920 594,766 1,065,255
----------- ---------- ----------
Net gain (loss) on investments and
foreign currency transactions ..................... 16,529,212 138,189 1,129,073
----------- ---------- ----------
Net increase in net assets
resulting from operations ......................... $94,826,241 $2,017,664 $7,791,787
=========== ========== ==========
Managed International High Yield
Income Bond Bond
FOR THE YEAR ENDED SEPTEMBER 30, 2000 Portfolio Portfolio Portfolio
------------ ------------- -----------
<S> <C> <C> <C>
Investment Income:
Interest .......................................... $119,165,043 $ 4,776,934 $12,915,783
Dividends ......................................... 726,400 -- 881,597
------------ ----------- -----------
Total investment income ......................... 119,891,443 4,776,934 13,797,380
------------ ----------- -----------
Expenses:
Investment advisory fee ........................... 7,465,106 430,460 522,298
Administration fee ................................ 3,240,823 180,011 240,257
Custodian fee ..................................... 262,980 15,510 24,617
Transfer agent fee ................................ 509,455 35,957 57,866
Shareholders servicing fees ....................... 487,672 27,604 85,378
Shareholders processing fees ...................... 467,400 18,819 51,239
Distribution fees ................................. 39,802 38,546 222,143
Legal and audit ................................... 22,014 1,704 7,207
Printing .......................................... 148,763 2,270 9,590
Registration fees and expenses .................... 39,164 33,414 45,472
Trustees' fees and officers' salary ............... 25,353 1,083 611
Other ............................................. 99,969 8,178 7,843
------------ ----------- -----------
12,808,501 793,556 1,274,521
Less fees waived .................................. (1,743,474) -- (160,665)
------------ ----------- -----------
Total operating expenses ........................ 11,065,027 793,556 1,113,856
------------ ----------- -----------
Interest expense .................................. 9,983,191 358,120 565,862
------------ ------------ -----------
Total expenses .................................. 21,048,218 1,151,676 1,679,718
------------ ------------ -----------
Net investment income ................................ 98,843,225 3,625,258 12,117,662
------------ ----------- -----------
Realized and unrealized gain (loss) on
investments and foreign currency transactions:
Net realized gain (loss) from:
Investment transactions ......................... (29,798,552) (439,726) (1,650,432)
Futures and options ............................. (637,379) 968,969 --
Swap contracts .................................. 2,547,249 -- --
Foreign currency and forward
foreign currency transactions ................. (86,180) 5,123,792 --
------------ ----------- -----------
(27,974,862) 5,653,035 (1,650,432)
------------ ----------- -----------
Change in unrealized appreciation (depreciation) from:
Investments ..................................... 29,924,381 (3,028,197) (8,267,440)
Futures ......................................... (397,446) (289,201) --
Swap contracts .................................. 135,076 -- --
Foreign currency and forward
foreign currency transactions ................. 12,457 (539,511) --
------------ ----------- -----------
29,674,468 (3,856,909) (8,267,440)
------------ ----------- -----------
Net gain (loss) on investments and
foreign currency transactions ..................... 1,699,606 1,796,126 (9,917,872)
------------ ----------- -----------
Net increase in net assets
resulting from operations ......................... $100,542,831 $ 5,421,384 $ 2,199,790
============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
50 and 51
<PAGE>
BLACKROCK FUNDS
STATEMENT OF CASH FLOWS
LOW DURATION BOND PORTFOLIO
FOR THE YEAR ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
<S> <C>
Cash provided by (used in) Operating Activities
Investment income received ...................................... $ 23,182,447
Operating expenses paid ......................................... (1,469,578)
Interest expense paid ........................................... (5,122,159)
-------------
Net increase in cash from operating activities ..................... 16,590,710
-------------
Cash provided by (used in) Investing Activities
Purchases of long-term investments .............................. (661,692,592)
Proceeds from disposition of long-term portfolio investments .... 717,300,385
Net purchases of short-term investments ......................... (15,174,331)
-------------
Net increase in cash from investing activities ..................... 40,433,462
-------------
Cash provided by (used in) Financing Activities
Cash dividends paid ............................................. (12,220,286)
Net borrowing relative to reverse repurchase agreements ......... (20,308,643)
Proceeds related to capital stock purchases ..................... 163,124,263
Cash paid related to capital stock redemptions .................. (187,619,506)
-------------
Net decrease in cash from financing activities ..................... (57,024,172)
-------------
Net increase (decrease) in cash .................................... --
Cash at beginning of year .......................................... --
-------------
Cash at end of year ................................................ $ --
=============
Net increase in net assets resulting from operations ............... 16,653,175
Adjustments:
Increase in interest receivable ................................. (64,828)
Amortization of premium and accretion of discount ............... (225,585)
Increase in accrued expenses .................................... 47,300
Decrease in prepaid expenses .................................... 8,979
Net realized and changes in unrealized gain (loss) on investments 171,669
-------------
Total adjustments .................................................. (62,465)
-------------
NET INCREASE IN CASH FROM OPERATING ACTIVITIES ..................... $ 16,590,710
=============
</TABLE>
See accompanying notes to financial statements.
52
<PAGE>
BLACKROCK FUNDS
STATEMENT OF CASH FLOWS
INTERMEDIATE BOND PORTFOLIO
FOR THE YEAR ENDED SEPTEMBER 30, 2000
<TABLE>
<S> <C>
Cash provided by (used in) Operating Activities
Investment income received ...................................... $ 51,423,423
Operating expenses paid ......................................... (3,701,692)
Interest expense paid ........................................... (6,263,311)
---------------
Net increase in cash from operating activities ..................... 41,458,420
---------------
Cash provided by (used in) Investing Activities
Purchases of long-term investments .............................. (1,598,139,446)
Proceeds from disposition of long-term portfolio investments .... 1,492,013,932
Net purchases of short-term investments ......................... (1,056,033)
---------------
Net decrease in cash from investing activities ..................... (107,181,547)
---------------
Cash provided by (used in) Financing Activities
Cash dividends paid ............................................. (36,517,663)
Net borrowing relative to reverse repurchase agreements ......... (42,074,434)
Proceeds related to capital stock purchases ..................... 318,014,739
Cash paid related to capital stock redemptions .................. (173,699,515)
---------------
Net increase in cash from financing activities ..................... 65,723,127
---------------
Net increase (decrease) in cash .................................... --
Cash at beginning of year .......................................... --
---------------
Cash at end of year ................................................ $ --
===============
Net increase in net assets resulting from operations ............... $ 44,968,031
Adjustments:
Increase in interest receivable ................................. (488,569)
Amortization of premium and accretion of discount ............... (116,186)
Increase in accrued expenses .................................... 109,823
Decrease in prepaid expenses .................................... 14,090
Net realized and changes in unrealized gain (loss) on investments (3,028,769)
---------------
Total adjustments .................................................. (3,509,611)
---------------
NET INCREASE IN CASH FROM OPERATING ACTIVITIES ..................... $ 41,458,420
===============
</TABLE>
See accompanying notes to financial statements.
53
<PAGE>
BLACKROCK FUNDS
STATEMENT OF CASH FLOWS
GOVERNMENT INCOME PORTFOLIO
FOR THE YEAR gENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
<S> <C>
Cash provided by (used in) Operating Activities
Investment income received ...................................... $ 3,459,898
Operating expenses paid ......................................... (647,361)
Interest expense paid ........................................... (551,779)
------------
Net increase in cash from operating activities ..................... 2,260,758
------------
Cash provided by (used in) Investing Activities
Purchases of long-term investments .............................. (78,517,290)
Proceeds from disposition of long-term portfolio investments .... 108,001,061
Net purchases of short-term investments ......................... (2,127,121)
------------
Net increase in cash from investing activities ..................... 27,356,650
------------
Cash provided by (used in) Financing Activities
Cash dividends paid ............................................. (890,156)
Net borrowing relative to reverse repurchase agreements ......... (14,973,999)
Proceeds related to capital stock purchases ..................... 11,988,056
Cash paid related to capital stock redemptions .................. (25,741,309)
------------
Net decrease in cash from financing activities ..................... (29,617,408)
------------
Net increase (decrease) in cash .................................... --
Cash at beginning of year .......................................... --
------------
Cash at end of year ................................................ $ --
============
Net increase in net assets resulting from operations ............... $2,017,664
Adjustments:
Decrease in interest receivable ................................. 401,364
Amortization of premium and accretion of discount ............... 9,113
Decrease in accrued expenses .................................... (27,746)
Increase in prepaid expenses .................................... (1,448)
Net realized and changes in unrealized gain (loss) on investments (138,189)
------------
Total adjustments .................................................. 243,094
------------
NET INCREASE IN CASH FROM OPERATING ACTIVITIES ..................... $ 2,260,758
============
</TABLE>
See accompanying notes to financial statements.
54
<PAGE>
BLACKROCK FUNDS
STATEMENT OF CASH FLOWS
GNMA PORTFOLIO
FOR THE YEAR ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
<S> <C>
Cash provided by (used in) Operating Activities
Investment income received ...................................... $ 8,085,933
Operating expenses paid ......................................... (572,809)
Interest expense paid ........................................... (907,513)
-------------
Net increase in cash from operating activities ..................... 6,605,611
-------------
Cash provided by (used in) Investing Activities
Purchases of long-term investments .............................. (217,332,817)
Proceeds from disposition of long-term portfolio investments .... 247,699,343
Net purchases of short-term investments ......................... (4,626,530)
-------------
Net increase in cash from investing activities ..................... 25,739,996
-------------
Cash provided by (used in) Financing Activities
Cash dividends paid ............................................. (6,851,744)
Net borrowing relative to reverse repurchase agreements ......... (10,131,965)
Proceeds related to capital stock purchases ..................... 20,236,358
Cash paid related to capital stock redemptions .................. (35,598,256)
-------------
Net decrease in cash from financing activities ..................... (32,345,607)
-------------
Net increase (decrease) in cash .................................... --
Cash at beginning of year .......................................... --
-------------
Cash at end of year ................................................ $ --
=============
Net increase in net assets resulting from operations ............... $ 7,791,787
Adjustments:
Increase in interest receivable ................................. (73,194)
Amortization of premium and accretion of discount ............... (37,284)
Increase in accrued expenses .................................... 31,753
Decrease in prepaid expenses .................................... 21,622
Net realized and changes in unrealized gain (loss) on investments (1,129,073)
-------------
Total adjustments .................................................. (1,186,176)
-------------
NET INCREASE IN CASH FROM OPERATING ACTIVITIES ..................... $ 6,605,611
=============
</TABLE>
See accompanying notes to financial statements.
55
<PAGE>
BLACKROCK FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Low Duration
Bond Portfolio
----------------------------------
For the For the
Year Ended Year Ended
9/30/00 9/30/99
------------ ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................ $ 16,824,844 $ 17,395,274
Net realized gain (loss) on investments,
futures contracts, options contracts, swap contracts
and foreign currency related transactions .......... (2,190,387) (98,433)
Net unrealized appreciation (depreciation)
on investments, futures contracts, swap contracts
and foreign currency related transactions .......... 2,018,718 (6,133,725)
------------ ------------
Net increase (decrease) in net assets
resulting from operations .......................... 16,653,175 11,163,116
------------ ------------
Distributions to shareholders from:
Net investment income:
BlackRock Class ...................................... (6,381,700) (6,048,576)
Institutional Class .................................. (8,766,645) (10,205,420)
Service Class ........................................ (966,066) (982,999)
Investor A Class ..................................... (143,501) (146,545)
Investor B Class ..................................... (398,425) (153,762)
Investor C Class ..................................... (50,867) (33,050)
------------ ------------
Total distributions from net investment income ....... (16,707,204) (17,570,352)
------------ ------------
Net realized gains:
BlackRock Class ...................................... -- --
Institutional Class .................................. -- --
Service Class ........................................ -- --
Investor A Class ..................................... -- --
Investor B Class ..................................... -- --
Investor C Class ..................................... -- --
------------ ------------
Total distributions from net realized gains .......... -- --
------------ ------------
Total distributions to shareholders .................. (16,707,204) (17,570,352)
------------ ------------
Capital share transactions ............................... (20,518,222) (57,491,456)
------------ ------------
Total increase (decrease) in net assets .............. (20,572,251) (63,898,692)
------------ ------------
Net assets:
Beginning of period .................................. 265,464,295 329,362,987
------------ ------------
End of period ........................................ $244,892,044 $265,464,295
============ ============
Intermediate Government
Bond Portfolio
----------------------------------
For the For the
Year Ended Year Ended
9/30/00 9/30/99
------------ ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................ $ 23,943,023 $ 26,062,068
Net realized gain (loss) on investments,
futures contracts, options contracts, swap contracts
and foreign currency related transactions .......... (4,040,422) (3,095,084)
Net unrealized appreciation (depreciation)
on investments, futures contracts, swap contracts
and foreign currency related transactions .......... 3,696,818 (19,730,988)
------------ ------------
Net increase (decrease) in net assets
resulting from operations .......................... 23,599,419 3,235,996
------------ ------------
Distributions to shareholders from:
Net investment income:
BlackRock Class ...................................... -- --
Institutional Class .................................. (21,308,046) (23,884,375)
Service Class ........................................ (1,455,556) (1,570,838)
Investor A Class ..................................... (492,570) (566,000)
Investor B Class ..................................... (54,322) (25,528)
Investor C Class ..................................... (18,371) (15,327)
------------ ------------
Total distributions from net investment income ....... (23,328,865) (26,062,068)
------------ ------------
Net realized gains:
BlackRock Class ...................................... -- --
Institutional Class .................................. (531,361) (3,300,185)
Service Class ........................................ (36,299) (226,970)
Investor A Class ..................................... (18,784) (64,227)
Investor B Class ..................................... (1,376) (3,359)
Investor C Class ..................................... (659) (2,283)
------------ ------------
Total distributions from net realized gains .......... (588,479) (3,597,024)
------------ ------------
Total distributions to shareholders .................. (23,917,344) (29,659,092)
------------ ------------
Capital share transactions ............................... (61,708,580) (29,475,513)
------------ ------------
Total increase (decrease) in net assets .............. (62,026,505) (55,898,609)
------------ ------------
Net assets:
Beginning of period .................................. 424,119,690 480,018,299
------------ ------------
End of period ........................................ $362,093,185 $424,119,690
============ ============
Intermediate
Bond Portfolio
----------------------------------
For the For the
Year Ended Year Ended
9/30/00 9/30/99
------------ ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................ $ 41,939,262 $ 33,817,480
Net realized gain (loss) on investments,
futures contracts, options contracts, swap contracts
and foreign currency related transactions .......... (6,161,485) (4,101,046)
Net unrealized appreciation (depreciation)
on investments, futures contracts, swap contracts
and foreign currency related transactions .......... 9,190,254 (23,607,390)
------------ ------------
Net increase (decrease) in net assets
resulting from operations .......................... 44,968,031 6,109,044
------------ ------------
Distributions to shareholders from:
Net investment income:
BlackRock Class ...................................... (7,924,025) (2,641,213)
Institutional Class .................................. (31,805,556) (29,342,529)
Service Class ........................................ (1,447,957) (1,493,193)
Investor A Class ..................................... (181,145) (132,451)
Investor B Class ..................................... (53,917) (30,269)
Investor C Class ..................................... (17,336) (7,995)
------------ ------------
Total distributions from net investment income ....... (41,429,936) (33,647,650)
------------ ------------
Net realized gains:
BlackRock Class ...................................... (2,426) (510,365)
Institutional Class .................................. (25,959) (5,190,232)
Service Class ........................................ (1,333) (290,823)
Investor A Class ..................................... (216) (21,977)
Investor B Class ..................................... (57) (1,947)
Investor C Class ..................................... (24) (132)
------------ ------------
Total distributions from net realized gains .......... (30,015) (6,015,476)
------------ ------------
Total distributions to shareholders .................. (41,459,951) (39,663,126)
------------ ------------
Capital share transactions ............................... 148,966,342 13,472,500
------------ ------------
Total increase (decrease) in net assets .............. 152,474,422 (20,081,582)
------------ ------------
Net assets:
Beginning of period .................................. 546,662,911 566,744,493
------------ ------------
End of period ........................................ $699,137,333 $546,662,911
============ ============
Core
Bond Portfolio
------------------------------------
For the For the
Year Ended Year Ended
9/30/00 9/30/99
-------------- ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................ $ 78,297,029 $ 54,742,132
Net realized gain (loss) on investments,
futures contracts, options contracts, swap contracts
and foreign currency related transactions .......... (6,442,708) (10,417,663)
Net unrealized appreciation (depreciation)
on investments, futures contracts, swap contracts
and foreign currency related transactions .......... 22,971,920 (46,267,712)
-------------- ------------
Net increase (decrease) in net assets
resulting from operations .......................... 94,826,241 (1,943,243)
-------------- ------------
Distributions to shareholders from:
Net investment income:
BlackRock Class ...................................... (14,750,510) (7,653,342)
Institutional Class .................................. (56,899,046) (41,755,750)
Service Class ........................................ (3,686,601) (4,174,386)
Investor A Class ..................................... (376,501) (341,839)
Investor B Class ..................................... (660,943) (640,192)
Investor C Class ..................................... (204,998) (249,542)
-------------- ------------
Total distributions from net investment income ....... (76,578,599) (54,815,051)
-------------- ------------
Net realized gains:
BlackRock Class ...................................... (241,923) (13,815,881)
Institutional Class .................................. (1,056,940) (2,995,248)
Service Class ........................................ (96,076) (1,570,759)
Investor A Class ..................................... (9,978) (119,321)
Investor B Class ..................................... (21,048) (277,734)
Investor C Class ..................................... (6,041) (73,497)
-------------- ------------
Total distributions from net realized gains .......... (1,432,006) (18,852,440)
-------------- ------------
Total distributions to shareholders .................. (78,010,605) (73,667,491)
-------------- ------------
Capital share transactions ............................... 469,174,961 187,075,237
-------------- ------------
Total increase (decrease) in net assets .............. 485,990,597 111,464,503
-------------- ------------
Net assets:
Beginning of period .................................. 966,998,858 855,534,355
-------------- ------------
End of period ........................................ $1,452,989,455 $966,998,858
============== ============
</TABLE>
See accompanying notes to financial statements.
56 and 57
<PAGE>
BLACKROCK FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
Government
Income Portfolio
--------------------------------
For the For the
Year Ended Year Ended
9/30/00 9/30/99
------------ -----------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................ $ 1,879,475 $ 2,018,590
Net realized gain (loss)on investments, futures
contracts, options contracts, swap contracts and
foreign currency related transactions .............. (456,577) (1,150,263)
Net unrealized appreciation (depreciation)
on investments, futures contracts, swap contracts
and foreign currency related transactions .......... 594,766 (1,798,171)
------------ -----------
Net increase (decrease) in net assets
resulting from operations .......................... 2,017,664 (929,844)
------------ -----------
Distributions to shareholders from:
Net investment income:
BlackRock Class ...................................... -- --
Institutional Class .................................. -- --
Service Class ........................................ -- --
Investor A Class ..................................... (330,331) (362,323)
Investor B Class ..................................... (1,399,271) (1,504,558)
Investor C Class ..................................... (81,128) (119,390)
------------ -----------
Total distributions from net investment income ....... (1,810,730) (1,986,271)
------------ -----------
In excess of net investment income:
BlackRock Class ...................................... -- --
Institutional Class .................................. -- --
Service Class ........................................ -- --
Investor A Class ..................................... -- --
Investor B Class ..................................... -- --
Investor C Class ..................................... -- --
------------ -----------
Total distributions in excess of net investment income -- --
------------ -----------
Capital:
BlackRock Class ...................................... -- --
Institutional Class .................................. -- --
Service Class ........................................ -- --
Investor A Class ..................................... (23,853) (44,311)
Investor B Class ..................................... (102,715) (229,401)
Investor C Class ..................................... (5,341) (16,072)
------------ -----------
Total distributions from capital ..................... (131,909) (289,784)
------------ -----------
Net realized gains:
BlackRock Class ...................................... -- --
Institutional Class .................................. -- --
Service Class ........................................ -- --
Investor A Class ..................................... -- (101,189)
Investor B Class ..................................... -- (445,394)
Investor C Class ..................................... -- (37,364)
------------ -----------
Total distributions from net realized gains .......... -- (583,947)
------------ -----------
Total distributions to shareholders .................. (1,942,639) (2,860,002)
------------ -----------
Capital share transactions ............................... (12,370,956) 14,927,649
------------ -----------
Total increase (decrease) in net assets .............. (12,295,931) 11,137,803
------------ -----------
Net assets:
Beginning of period .................................. 43,898,991 32,761,188
------------ -----------
End of period ........................................ $ 31,603,060 $43,898,991
============ ===========
GNMA
Portfolio
-------------------------------
For the For the
Year Ended Year Ended
9/30/00 9/30/99
------------ ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................ $ 6,662,714 $ 7,090,642
Net realized gain (loss)on investments, futures
contracts, options contracts, swap contracts and
foreign currency related transactions .............. 63,818 (752,640)
Net unrealized appreciation (depreciation)
on investments, futures contracts, swap contracts
and foreign currency related transactions .......... 1,065,255 (4,917,470)
------------ ------------
Net increase (decrease) in net assets
resulting from operations .......................... 7,791,787 1,420,532
------------ ------------
Distributions to shareholders from:
Net investment income:
BlackRock Class ...................................... -- --
Institutional Class .................................. (6,542,550) (6,866,829)
Service Class ........................................ (9,662) (2,614)
Investor A Class ..................................... (93,730) (60,535)
Investor B Class ..................................... (15,091) (10,508)
Investor C Class ..................................... (1,681) (485)
------------ ------------
Total distributions from net investment income ....... (6,662,714) (6,940,971)
------------ ------------
In excess of net investment income:
BlackRock Class ...................................... -- --
Institutional Class .................................. (201,944) --
Service Class ........................................ (418) --
Investor A Class ..................................... (3,995) --
Investor B Class ..................................... (712) --
Investor C Class ..................................... (61) --
------------ ------------
Total distributions in excess of net investment income (207,130) --
------------ ------------
Capital:
BlackRock Class ...................................... -- --
Institutional Class .................................. -- --
Service Class ........................................ -- --
Investor A Class ..................................... -- --
Investor B Class ..................................... -- --
Investor C Class ..................................... -- --
------------ ------------
Total distributions from capital ..................... -- --
------------ ------------
Net realized gains:
BlackRock Class ...................................... -- --
Institutional Class .................................. (204,646) (216,280)
Service Class ........................................ (184) --
Investor A Class ..................................... (2,752) (1,241)
Investor B Class ..................................... (473) (413)
Investor C Class ..................................... (48) (1)
------------ ------------
Total distributions from net realized gains .......... (208,103) (217,935)
------------ ------------
Total distributions to shareholders .................. (7,077,947) (7,158,906)
------------ ------------
Capital share transactions ............................... (14,676,883) (1,486,779)
------------ ------------
Total increase (decrease) in net assets .............. (13,963,043) (7,225,153)
------------ ------------
Net assets:
Beginning of period .................................. 111,514,840 118,739,993
------------ ------------
End of period ........................................ $ 97,551,797 $111,514,840
============ ============
Managed
Income Portfolio
----------------------------------
For the For the
Year Ended Year Ended
9/30/00 9/30/99
-------------- --------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................ $ 98,843,225 $ 96,562,007
Net realized gain (loss)on investments, futures
contracts, options contracts, swap contracts and
foreign currency related transactions .............. (27,974,862) (9,274,264)
Net unrealized appreciation (depreciation)
on investments, futures contracts, swap contracts
and foreign currency related transactions .......... 29,674,468 (79,872,030)
-------------- --------------
Net increase (decrease) in net assets
resulting from operations .......................... 100,542,831 7,415,713
-------------- --------------
Distributions to shareholders from:
Net investment income:
BlackRock Class ...................................... -- --
Institutional Class .................................. (79,133,078) (79,275,756)
Service Class ........................................ (17,772,458) (16,129,657)
Investor A Class ..................................... (892,241) (938,291)
Investor B Class ..................................... (269,572) (267,898)
Investor C Class ..................................... (653) (1,887)
-------------- --------------
Total distributions from net investment income ....... (98,068,002) (96,613,489)
-------------- --------------
In excess of net investment income:
BlackRock Class ...................................... -- --
Institutional Class .................................. -- --
Service Class ........................................ -- --
Investor A Class ..................................... -- --
Investor B Class ..................................... -- --
Investor C Class ..................................... -- --
-------------- --------------
Total distributions in excess of net investment income -- --
-------------- --------------
Capital:
BlackRock Class ...................................... -- --
Institutional Class .................................. -- --
Service Class ........................................ -- --
Investor A Class ..................................... -- --
Investor B Class ..................................... -- --
Investor C Class ..................................... -- --
-------------- --------------
Total distributions from capital ..................... -- --
-------------- --------------
Net realized gains:
BlackRock Class ...................................... -- --
Institutional Class .................................. (2,991,619) (19,011,738)
Service Class ........................................ (658,497) (3,866,356)
Investor A Class ..................................... (35,544) (252,718)
Investor B Class ..................................... (13,390) (71,999)
Investor C Class ..................................... -- --
-------------- --------------
Total distributions from net realized gains .......... (3,699,050) (23,202,811)
-------------- --------------
Total distributions to shareholders .................. (101,767,052) (119,816,300)
-------------- --------------
Capital share transactions ............................... (79,372,000) 45,013,063
-------------- --------------
Total increase (decrease) in net assets .............. (80,596,221) (67,387,524)
-------------- --------------
Net assets:
Beginning of period .................................. 1,544,843,742 1,612,231,266
-------------- --------------
End of period ........................................ $1,464,247,521 $1,544,843,742
============== ==============
International
Bond Portfolio
-------------------------------
For the For the
Year Ended Year ended
9/30/00 9/30/99
----------- -----------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................ $ 3,625,258 $ 2,188,509
Net realized gain (loss)on investments, futures
contracts, options contracts, swap contracts and
foreign currency related transactions .............. 5,653,035 (74,616)
Net unrealized appreciation (depreciation)
on investments, futures contracts, swap contracts
and foreign currency related transactions .......... (3,856,909) (1,551,469)
----------- -----------
Net increase (decrease) in net assets
resulting from operations .......................... 5,421,384 562,424
----------- -----------
Distributions to shareholders from:
Net investment income:
BlackRock Class ...................................... -- --
Institutional Class .................................. (3,105,225) (2,894,971)
Service Class ........................................ (168,663) (158,774)
Investor A Class ..................................... (122,554) (107,062)
Investor B Class ..................................... (97,945) (88,432)
Investor C Class ..................................... (85,265) (80,994)
----------- -----------
Total distributions from net investment income ....... (3,579,652) (3,330,233)
----------- -----------
In excess of net investment income:
BlackRock Class ...................................... -- --
Institutional Class .................................. -- --
Service Class ........................................ -- --
Investor A Class ..................................... -- --
Investor B Class ..................................... -- --
Investor C Class ..................................... -- --
----------- -----------
Total distributions in excess of net investment income -- --
----------- -----------
Capital:
BlackRock Class ...................................... -- --
Institutional Class .................................. -- --
Service Class ........................................ -- --
Investor A Class ..................................... -- --
Investor B Class ..................................... -- --
Investor C Class ..................................... -- --
----------- -----------
Total distributions from capital ..................... -- --
----------- -----------
Net realized gains:
BlackRock Class ...................................... -- --
Institutional Class .................................. (1,954,417) --
Service Class ........................................ (117,946) --
Investor A Class ..................................... (133,559) --
Investor B Class ..................................... (90,272) --
Investor C Class ..................................... (68,503) --
----------- -----------
Total distributions from net realized gains .......... (2,364,697) --
----------- -----------
Total distributions to shareholders .................. (5,944,349) (3,330,233)
----------- -----------
Capital share transactions ............................... 14,383,463 22,619,783
----------- -----------
Total increase (decrease) in net assets .............. 13,860,498 19,851,974
----------- -----------
Net assets:
Beginning of period .................................. 70,349,164 50,497,190
----------- -----------
End of period ........................................ $84,209,662 $70,349,164
=========== ===========
High Yield
Bond Portfolio
------------------------------------
For the For the
Year Ended Period 11/19/98 1
9/30/00 through 9/30/99
------------ -----------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................ $ 12,117,662 $ 5,487,273
Net realized gain (loss)on investments, futures
contracts, options contracts, swap contracts and
foreign currency related transactions .............. (1,650,432) (683,582)
Net unrealized appreciation (depreciation)
on investments, futures contracts, swap contracts
and foreign currency related transactions .......... (8,267,440) (2,601,709)
------------ -----------
Net increase (decrease) in net assets
resulting from operations .......................... 2,199,790 2,201,982
------------ -----------
Distributions to shareholders from:
Net investment income:
BlackRock Class ...................................... (12) (8)
Institutional Class .................................. (8,234,984) (4,262,789)
Service Class ........................................ (2,205) (8)
Investor A Class ..................................... (514,119) (231,248)
Investor B Class ..................................... (2,618,038) (554,384)
Investor C Class ..................................... (493,802) (124,941)
------------ -----------
Total distributions from net investment income ....... (11,863,160) (5,173,378)
------------ -----------
In excess of net investment income:
BlackRock Class ...................................... -- --
Institutional Class .................................. -- --
Service Class ........................................ -- --
Investor A Class ..................................... -- --
Investor B Class ..................................... -- --
Investor C Class ..................................... -- --
------------ -----------
Total distributions in excess of net investment income -- --
------------ -----------
Capital:
BlackRock Class ...................................... -- --
Institutional Class .................................. -- --
Service Class ........................................ -- --
Investor A Class ..................................... -- --
Investor B Class ..................................... -- --
Investor C Class ..................................... -- --
------------ -----------
Total distributions from capital ..................... -- --
------------ -----------
Net realized gains:
BlackRock Class ...................................... -- --
Institutional Class .................................. -- --
Service Class ........................................ -- --
Investor A Class ..................................... -- --
Investor B Class ..................................... -- --
Investor C Class ..................................... -- --
------------ -----------
Total distributions from net realized gains .......... -- --
------------ -----------
Total distributions to shareholders .................. (11,863,160) (5,173,378)
------------ -----------
Capital share transactions ............................... 47,969,735 86,296,407
------------ -----------
Total increase (decrease) in net assets .............. 38,306,365 83,325,011
------------ -----------
Net assets:
Beginning of period .................................. 83,325,011 --
------------ -----------
End of period ........................................ $121,631,376 $83,325,011
============ ===========
<FN>
----------
1 Commencement of operations.
</FN>
</TABLE>
See accompanying notes to financial statements.
58 and 59
<PAGE>
BLACKROCK FUNDS
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout each Period
<TABLE>
<CAPTION>
Net Net gain Distributions
asset (loss) on Distributions in excess
value Net investments from net of net
beginning investment (both realized investment investment
of period income and unrealized) income income
------------------------------------------------------------------------------------------------------------------------------------
---------------------------
LOW DURATION BOND PORTFOLIO
---------------------------
<S> <C> <C> <C> <C> <C>
BLACKROCK CLASS
9/30/00 $ 9.82 $0.62 $(0.02) $(0.61) $ --
9/30/99 10.03 0.61 (0.22) (0.60) --
9/30/98 9.89 0.59 0.12 (0.57) --
6/3/97 1 through 9/30/97 9.82 0.19 0.07 (0.19) --
INSTITUTIONAL CLASS
9/30/00 $ 9.82 $0.61 $(0.01) $(0.60) $--
9/30/99 10.03 0.58 (0.20) (0.59) --
9/30/98 9.89 0.56 0.14 (0.56) --
9/30/97 9.79 0.58 0.08 (0.56) --
4/1/96 through 9/30/96 9.79 0.28 (0.01) (0.27) --
7/1/95 through 3/31/96 9.83 0.42 -- (0.41) (0.04)
SERVICE CLASS
9/30/00 $ 9.82 $0.57 $ 0.00 $(0.57) $ --
9/30/99 10.03 0.55 (0.20) (0.56) --
9/30/98 9.89 0.66 0.01 (0.53) --
9/30/97 9.79 0.54 0.09 (0.53) --
4/1/96 through 9/30/96 9.79 0.26 (0.01) (0.25) --
1/12/96 1 through 3/31/96 9.91 0.11 (0.12) (0.11) --
INVESTOR A CLASS
9/30/00 $ 9.82 $0.55 $ 0.00 $(0.55) $ --
9/30/99 10.03 0.54 (0.21) (0.54) --
9/30/98 9.89 0.51 0.14 (0.51) --
9/30/97 9.79 0.52 0.09 (0.51) --
4/1/96 through 9/30/96 9.79 0.25 (0.01) (0.24) --
1/12/96 1 through 3/31/96 9.91 0.10 (0.12) (0.10) --
INVESTOR B CLASS
9/30/00 $ 9.82 $0.48 $ 0.00 $(0.48) $ --
9/30/99 10.03 0.45 (0.19) (0.47) --
9/30/98 9.89 0.41 0.17 (0.44) --
11/18/96 1 through 9/30/97 9.86 0.41 -- (0.38) --
INVESTOR C CLASS
9/30/00 $ 9.82 $0.48 $ 0.00 $(0.48) $ --
9/30/99 10.03 0.46 (0.20) (0.47) --
9/30/98 9.89 0.44 0.14 (0.44) --
2/24/97 1 through 9/30/97 9.87 0.26 0.02 (0.26) --
--------------------------------------
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
--------------------------------------
INSTITUTIONAL CLASS
9/30/00 $ 9.89 $0.61 $ 0.01 $(0.59) $ --
9/30/99 10.48 0.59 (0.51) (0.59) --
9/30/98 10.11 0.57 0.39 (0.59) --
9/30/97 9.92 0.59 0.19 (0.59) --
9/30/96 10.02 0.58 (0.11) (0.57) --
SERVICE CLASS
9/30/00 $ 9.89 $0.58 $ 0.01 $(0.56) $ --
9/30/99 10.48 0.56 (0.51) (0.56) --
9/30/98 10.11 0.58 0.35 (0.56) --
9/30/97 9.92 0.56 0.19 (0.56) --
9/30/96 10.02 0.56 (0.12) (0.54) --
INVESTOR A CLASS
9/30/00 $ 9.89 $0.55 $ 0.02 $(0.54) $ --
9/30/99 10.48 0.54 (0.51) (0.54) --
9/30/98 10.11 0.53 0.38 (0.54) --
9/30/97 9.92 0.54 0.19 (0.54) --
9/30/96 10.03 0.55 (0.13) (0.53) --
INVESTOR B CLASS
9/30/00 $ 9.89 $0.49 $ 0.01 $(0.47) $ --
9/30/99 10.48 0.46 (0.51) (0.46) --
9/30/98 10.11 0.47 0.37 (0.47) --
10/11/96 1 through 9/30/97 9.98 0.45 0.13 (0.45) --
INVESTOR C CLASS
9/30/00 $ 9.89 $0.48 $ 0.02 $(0.47) $ --
9/30/99 10.48 0.46 (0.51) (0.46) --
9/30/98 10.11 0.47 0.37 (0.47) --
10/8/96 1 through 9/30/97 9.98 0.45 0.13 (0.45) --
Distributions Net
Distributions in excess asset
from net of net value
realized realized end of
gains gains period
----------------------------------------------------------------------------------------------------
---------------------------
LOW DURATION BOND PORTFOLIO
---------------------------
<C> <C> <C> <C>
BLACKROCK CLASS
9/30/00 $ -- $ -- $ 9.81
9/30/99 -- -- 9.82
9/30/98 -- -- 10.03
6/3/97 1 through 9/30/97 -- -- 9.89
INSTITUTIONAL CLASS
9/30/00 $ -- $ -- $ 9.82
9/30/99 -- -- 9.82
9/30/98 -- -- 10.03
9/30/97 -- -- 9.89
4/1/96 through 9/30/96 -- -- 9.79
7/1/95 through 3/31/96 (0.01) -- 9.79
SERVICE CLASS
9/30/00 $ -- $ -- $ 9.82
9/30/99 -- -- 9.82
9/30/98 -- -- 10.03
9/30/97 -- -- 9.89
4/1/96 through 9/30/96 -- -- 9.79
1/12/96 1 through 3/31/96 -- -- 9.79
INVESTOR A CLASS
9/30/00 $ -- $ -- $ 9.82
9/30/99 -- -- 9.82
9/30/98 -- -- 10.03
9/30/97 -- -- 9.89
4/1/96 through 9/30/96 -- -- 9.79
1/12/96 1 through 3/31/96 -- -- 9.79
INVESTOR B CLASS
9/30/00 $ -- $ -- $ 9.82
9/30/99 -- -- 9.82
9/30/98 -- -- 10.03
11/18/96 1 through 9/30/97 -- -- 9.89
INVESTOR C CLASS
9/30/00 $ -- $ -- $ 9.82
9/30/99 -- -- 9.82
9/30/98 -- -- 10.03
2/24/97 1 through 9/30/97 -- -- 9.89
--------------------------------------
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
--------------------------------------
INSTITUTIONAL CLASS
9/30/00 $(0.01) $ -- $ 9.91
9/30/99 (0.08) -- 9.89
9/30/98 -- -- 10.48
9/30/97 -- -- 10.11
9/30/96 -- -- 9.92
SERVICE CLASS
9/30/00 $(0.01) $ -- $ 9.91
9/30/99 (0.08) -- 9.89
9/30/98 -- -- 10.48
9/30/97 -- -- 10.11
9/30/96 -- -- 9.92
INVESTOR A CLASS
9/30/00 $(0.01) $ -- $ 9.91
9/30/99 (0.08) -- 9.89
9/30/98 -- -- 10.48
9/30/97 -- -- 10.11
9/30/96 -- -- 9.92
INVESTOR B CLASS
9/30/00 $(0.01) $ -- $ 9.91
9/30/99 (0.08) -- 9.89
9/30/98 -- -- 10.48
10/11/96 1 through 9/30/97 -- -- 10.11
INVESTOR C CLASS
9/30/00 $(0.01) $ -- $ 9.91
9/30/99 (0.08) -- 9.89
9/30/98 -- -- 10.48
10/8/96 1 through 9/30/97 -- -- 10.11
Net Ratio of expenses
assets Ratio of to average net
end of expenses to assets
Total period average net (excluding
return (000) assets interest expense)
------------------------------------------------------------------------------------------------------------------------------
---------------------------
LOW DURATION BOND PORTFOLIO
---------------------------
<C> <C> <C> <C> <C>
BLACKROCK CLASS
9/30/00 6.35% $ 86,868 2.25% 0.40%
9/30/99 4.06 79,326 2.26 0.41
9/30/98 7.44 140,493 1.59 0.40
6/3/97 1 through 9/30/97 2.68 68,300 1.01 2 0.40 2
INSTITUTIONAL CLASS
9/30/00 6.29% $126,818 2.43% 0.55%
9/30/99 3.91 157,553 2.39 0.56
9/30/98 7.28 166,887 1.80 0.55
9/30/97 6.89 102,490 1.54 0.55
4/1/96 through 9/30/96 2.70 135,686 0.64 2 0.55 2
7/1/95 through 3/31/96 4.25 52,843 0.96 2 0.63 2
SERVICE CLASS
9/30/00 5.98% $ 19,745 2.77% 0.85%
9/30/99 3.60 16,872 2.70 0.86
9/30/98 6.96 18,393 1.98 0.85
9/30/97 6.57 82,873 1.85 0.85
4/1/96 through 9/30/96 2.54 91,870 0.97 2 0.85 2
1/12/96 1 through 3/31/96 (0.11) 181,670 1.18 2 0.85 2
INVESTOR A CLASS
9/30/00 5.80% 3 $ 2,512 2.94% 1.02%
9/30/99 3.42 3 2,594 2.79 1.02
9/30/98 6.78 3 2,850 2.32 1.02
9/30/97 6.39 3 1,079 2.02 1.02
4/1/96 through 9/30/96 2.46 3 938 1.12 1.02 2
1/12/96 1 through 3/31/96 (0.15)3 719 1.34 2 1.01 2
INVESTOR B CLASS
9/30/00 5.01% 4 $ 8,142 3.66% 1.77%
9/30/99 2.65 4 7,549 3.41 1.75
9/30/98 5.99 4 398 3.08 1.76
11/18/96 1 through 9/30/97 4.31 4 13 2.19 2 1.73 2
INVESTOR C CLASS
9/30/00 5.01% 4 $ 807 3.69% 1.77%
9/30/99 2.65 4 1,570 3.47 1.77
9/30/98 5.99 4 342 2.98 1.75
2/24/97 1 through 9/30/97 2.91 4 72 2.23 2 1.72 2
--------------------------------------
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
--------------------------------------
INSTITUTIONAL CLASS
9/30/00 6.54% $325,510 1.02% 0.60%
9/30/99 0.75 388,917 0.81 0.60
9/30/98 9.83 441,691 0.63 0.59
9/30/97 8.08 96,605 0.67 0.55
9/30/96 4.82 126,312 0.70 0.53
SERVICE CLASS
9/30/00 6.23% $ 25,325 1.32% 0.90%
9/30/99 0.45 26,687 1.11 0.90
9/30/98 9.50 29,697 0.91 0.88
9/30/97 7.75 50,535 0.97 0.85
9/30/96 4.51 47,494 1.00 0.83
INVESTOR A CLASS
9/30/00 6.05% 3 $ 9,262 1.47% 1.08%
9/30/99 0.28 3 7,239 1.25 1.06
9/30/98 9.32 3 7,972 1.09 1.05
9/30/97 7.57 3 5,374 1.14 1.02
9/30/96 4.36 3 5,903 1.14 0.95
INVESTOR B CLASS
9/30/00 5.26%4 $ 1,398 2.24% 1.81%
9/30/99 (0.47)4 809 1.97 1.80
9/30/98 8.51 4 361 1.84 1.79
10/11/96 1 through 9/30/97 5.94 4 28 1.90 2 1.77 2
INVESTOR C CLASS
9/30/00 5.26%4 $ 598 2.23% 1.81%
9/30/99 (0.47)4 468 2.00 1.81
9/30/98 8.51 4 299 1.81 1.78
10/8/96 1 through 9/30/97 5.94 4 51 1.78 2 1.71 2
Ratio of net
Ratio of expenses investment income
to average Ratio of net to average
net assets investment income net assets Portfolio
(excluding to average net (excluding turnover
waivers) assets waivers) rate
--------------------------------------------------------------------------------------------------------------------
---------------------------
LOW DURATION BOND PORTFOLIO
---------------------------
<C> <C> <C> <C> <C>
BLACKROCK CLASS
9/30/00 2.66% 6.30% 5.89% 182%
9/30/99 2.59 6.04 5.71 177
9/30/98 1.99 5.93 5.53 227
6/3/97 1 through 9/30/97 1.34 2 5.97 2 5.64 2 371
INSTITUTIONAL CLASS
9/30/00 2.71% 6.16% 5.88% 182%
9/30/99 2.67 5.89 5.62 177
9/30/98 2.20 5.77 5.37 227
9/30/97 1.87 5.15 4.82 371
4/1/96 through 9/30/96 0.92 2 5.63 2 5.36 2 228
7/1/95 through 3/31/96 1.16 2 4.92 2 4.72 2 185
SERVICE CLASS
9/30/00 3.05% 5.86% 5.58% 182%
9/30/99 2.97 5.59 5.32 177
9/30/98 2.38 5.49 5.09 227
9/30/97 2.18 4.86 4.53 371
4/1/96 through 9/30/96 1.25 2 5.28 2 5.01 2 228
1/12/96 1 through 3/31/96 1.38 2 4.92 2 4.72 2 185
INVESTOR A CLASS
9/30/00 3.22% 5.69% 5.41% 182%
9/30/99 3.07 5.38 5.10 177
9/30/98 2.72 5.29 4.89 227
9/30/97 2.35 4.72 4.39 371
4/1/96 through 9/30/96 1.40 2 5.10 2 4.82 2 228
1/12/96 1 through 3/31/96 1.54 2 4.61 2 4.41 2 185
INVESTOR B CLASS
9/30/00 3.94% 4.93% 4.65% 182%
9/30/99 3.67 4.59 4.34 177
9/30/98 3.48 4.50 4.10 227
11/18/96 1 through 9/30/97 2.52 2 4.50 2 4.17 2 371
INVESTOR C CLASS
9/30/00 3.97% 4.96% 4.68% 182%
9/30/99 3.72 4.62 4.37 177
9/30/98 3.38 4.47 4.07 227
2/24/97 1 through 9/30/97 2.56 2 4.49 2 4.16 2 371
--------------------------------------
INTERMEDIATE GOVERNMENT BOND PORTFOLIO
--------------------------------------
INSTITUTIONAL CLASS
9/30/00 1.23% 6.17% 5.96% 131%
9/30/99 1.02 5.77 5.56 191
9/30/98 0.89 5.72 5.46 272
9/30/97 0.98 5.88 5.57 291
9/30/96 1.00 5.86 5.56 580
SERVICE CLASS
9/30/00 1.54% 5.87% 5.66% 131%
9/30/99 1.32 5.47 5.26 191
9/30/98 1.17 5.51 5.25 272
9/30/97 1.28 5.58 5.27 291
9/30/96 1.30 5.56 5.26 580
INVESTOR A CLASS
9/30/00 1.69% 5.66% 5.45% 131%
9/30/99 1.46 5.29 5.08 191
9/30/98 1.35 5.33 5.07 272
9/30/97 1.45 5.42 5.11 291
9/30/96 1.44 5.45 5.16 580
INVESTOR B CLASS
9/30/00 2.45% 4.96% 4.75% 131%
9/30/99 2.19 4.57 4.34 191
9/30/98 2.10 4.61 4.35 272
10/11/96 1 through 9/30/97 2.21 2 4.62 2 4.31 2 291
INVESTOR C CLASS
9/30/00 2.44% 4.87% 4.66% 131%
9/30/99 2.22 4.56 4.34 191
9/30/98 2.07 4.48 4.22 272
10/8/96 1 through 9/30/97 2.09 2 4.50 2 4.19 2 291
</TABLE>
See accompanying notes to financial statements.
60 and 61
<PAGE>
BLACKROCK FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
For a Share Outstanding Throughout each Period
<TABLE>
<CAPTION>
Net Net gain
asset (loss) on Distributions
value Net investments from net
beginning investment (both realized investment
of period income and unrealized) income
----------------------------------------------------------------------------------------------------------------------
---------------------------
INTERMEDIATE BOND PORTFOLIO
---------------------------
<S> <C> <C> <C> <C>
BLACKROCK CLASS
9/30/00 $ 9.10 $0.58 $ 0.03 $(0.58)
9/30/99 9.67 0.58 (0.47) (0.58)
5/1/98 1 through 9/30/98 9.46 0.24 0.26 (0.24)
INSTITUTIONAL CLASS
9/30/00 $ 9.10 $0.58 $ 0.02 $(0.57)
9/30/99 9.67 0.57 (0.47) (0.57)
9/30/98 9.49 0.57 0.23 (0.57)
9/30/97 9.32 0.58 0.17 (0.58)
9/30/96 9.43 0.56 (0.09) (0.55)
SERVICE CLASS
9/30/00 $ 9.10 $0.55 $ 0.02 $(0.54)
9/30/99 9.67 0.54 (0.47) (0.54)
9/30/98 9.49 0.58 0.20 (0.55)
9/30/97 9.32 0.55 0.17 (0.55)
9/30/96 9.43 0.53 (0.09) (0.52)
INVESTOR A CLASS
9/30/00 $ 9.10 $0.53 $ 0.02 $(0.53)
9/30/99 9.67 0.52 (0.47) (0.52)
9/30/98 9.49 0.53 0.23 (0.53)
9/30/97 9.32 0.53 0.17 (0.53)
9/30/96 9.43 0.52 (0.09) (0.51)
INVESTOR B CLASS
9/30/00 $ 9.10 $0.47 $ 0.02 $(0.46)
9/30/99 9.67 0.45 (0.47) (0.45)
2/5/98 1 through 9/30/98 9.51 0.29 0.21 (0.29)
INVESTOR C CLASS
9/30/00 $ 9.10 $0.46 $ 0.04 $(0.46)
10/16/98 1 through 9/30/99 9.65 0.43 (0.45) (0.43)
-------------------
CORE BOND PORTFOLIO
-------------------
BLACKROCK CLASS
9/30/00 $ 9.31 $0.61 $ 0.05 $(0.60)
9/30/99 10.12 0.59 (0.60) (0.58)
9/30/98 9.82 0.61 0.40 (0.62)
5/1/97 1 through 9/30/97 9.57 0.26 0.24 (0.25)
INSTITUTIONAL CLASS
9/30/00 $ 9.31 $0.60 $ 0.05 $(0.59)
9/30/99 10.12 0.57 (0.59) (0.57)
9/30/98 9.82 0.59 0.40 (0.60)
9/30/97 9.55 0.62 0.26 (0.61)
4/1/96 through 9/30/96 9.61 0.30 (0.06) (0.30)
7/1/95 though 3/31/96 9.85 0.47 (0.07) (0.47)
SERVICE CLASS
9/30/00 $ 9.31 $0.57 $ 0.05 $(0.56)
9/30/99 10.12 0.54 (0.59) (0.54)
9/30/98 9.82 0.56 0.40 (0.57)
9/30/97 9.55 0.59 0.26 (0.58)
4/1/96 through 9/30/96 9.61 0.30 (0.07) (0.29)
1/12/96 1 through 3/31/96 9.91 0.11 (0.30) (0.11)
INVESTOR A CLASS
9/30/00 $ 9.31 $0.55 $ 0.05 $(0.54)
9/30/99 10.12 0.53 (0.60) (0.52)
9/30/98 9.82 0.55 0.40 (0.56)
9/30/97 9.55 0.58 0.26 (0.57)
4/1/96 through 9/30/96 9.61 0.28 (0.06) (0.28)
1/31/96 1 through 3/31/96 9.99 0.08 (0.38) (0.08)
INVESTOR B CLASS
9/30/00 $ 9.31 $0.48 $ 0.04 $(0.47)
9/30/99 10.12 0.46 (0.60) (0.45)
9/30/98 9.82 0.47 0.40 (0.48)
9/30/97 9.55 0.51 0.26 (0.50)
4/1/96 through 9/30/96 9.61 0.26 (0.07) (0.25)
3/18/96 1 through 3/31/96 9.58 0.01 0.03 (0.01)
</TABLE>
<TABLE>
<CAPTION>
Distributions Distributions Net
in excess Distributions in excess asset
of net from net of net value
investment realized realized end of
income gains gains period
-----------------------------------------------------------------------------------------------------------------
---------------------------
INTERMEDIATE BOND PORTFOLIO
---------------------------
<S> <C> <C> <C> <C>
BLACKROCK CLASS
9/30/00 $ -- $ -- $ -- $ 9.13
9/30/99 -- (0.10) -- 9.10
5/1/98 1 through 9/30/98 -- (0.05) -- 9.67
INSTITUTIONAL CLASS
9/30/00 $ -- $ -- $ -- $ 9.13
9/30/99 -- (0.10) -- 9.10
9/30/98 -- (0.05) -- 9.67
9/30/97 -- -- -- 9.49
9/30/96 -- (0.03) -- 9.32
SERVICE CLASS
9/30/00 $ -- $ -- $ -- $ 9.13
9/30/99 -- (0.10) -- 9.10
9/30/98 -- (0.05) -- 9.67
9/30/97 -- -- -- 9.49
9/30/96 -- (0.03) -- 9.32
INVESTOR A CLASS
9/30/00 $ -- $ -- $ -- $ 9.12
9/30/99 -- (0.10) -- 9.10
9/30/98 -- (0.05) -- 9.67
9/30/97 -- -- -- 9.49
9/30/96 -- (0.03) -- 9.32
INVESTOR B CLASS
9/30/00 $ -- $ -- $ -- $ 9.13
9/30/99 -- (0.10) -- 9.10
2/5/98 1 through 9/30/98 -- (0.05) -- 9.67
INVESTOR C CLASS
9/30/00 $ -- $ -- $ -- $ 9.14
10/16/98 1 through 9/30/99 -- (0.10) -- 9.10
-------------------
CORE BOND PORTFOLIO
-------------------
BLACKROCK CLASS
9/30/00 $ -- $(0.01) $ -- $ 9.36
9/30/99 -- (0.22) -- 9.31
9/30/98 -- (0.09) -- 10.12
5/1/97 1 through 9/30/97 -- -- -- 9.82
INSTITUTIONAL CLASS
9/30/00 $ -- $(0.01) $ -- $ 9.36
9/30/99 -- (0.22) -- 9.31
9/30/98 -- (0.09) -- 10.12
9/30/97 -- -- -- 9.82
4/1/96 through 9/30/96 -- -- -- 9.55
7/1/95 though 3/31/96 -- (0.17) -- 9.61
SERVICE CLASS
9/30/00 $ -- $(0.01) $ -- $ 9.36
9/30/99 -- (0.22) -- 9.31
9/30/98 -- (0.09) -- 10.12
9/30/97 -- -- -- 9.82
4/1/96 through 9/30/96 -- -- -- 9.55
1/12/96 1 through 3/31/96 -- -- -- 9.61
INVESTOR A CLASS
9/30/00 $ -- $(0.01) $ -- 9.36
9/30/99 -- (0.22) -- 9.31
9/30/98 -- (0.09) -- 10.12
9/30/97 -- -- -- 9.82
4/1/96 through 9/30/96 -- -- -- 9.55
1/31/96 1 through 3/31/96 -- -- -- 9.61
INVESTOR B CLASS
9/30/00 $ -- $(0.01) $ -- $ 9.35
9/30/99 -- (0.22) -- 9.31
9/30/98 -- (0.09) -- 10.12
9/30/97 -- -- -- 9.82
4/1/96 through 9/30/96 -- -- -- 9.55
3/18/96 1 through 3/31/96 -- -- -- 9.61
</TABLE>
<TABLE>
<CAPTION>
Ratio of
Net expenses to
assets Ratio of average net
end of expenses to assets
Total period average net (excluding
return (000) assets interest expense)
-----------------------------------------------------------------------------------------------------------------------
---------------------------
INTERMEDIATE BOND PORTFOLIO
---------------------------
<S> <C> <C> <C> <C>
BLACKROCK CLASS
9/30/00 7.05% $ 152,412 1.24% 0.45%
9/30/99 1.25 42,311 1.61 0.44
5/1/98 1 through 9/30/98 8.86 48,365 1.43 2 0.45 2
INSTITUTIONAL CLASS
9/30/00 6.89% $ 516,538 1.43% 0.60%
9/30/99 1.10 476,236 1.74 0.60
9/30/98 8.81 490,674 1.72 0.59
9/30/97 8.40 295,709 0.98 0.53
9/30/96 5.10 207,909 0.83 0.53
SERVICE CLASS
9/30/00 6.57% $ 25,242 1.74% 0.90%
9/30/99 0.80 24,299 2.05 0.90
9/30/98 8.48 25,946 2.06 0.89
9/30/97 8.07 52,316 1.27 0.83
9/30/96 4.79 45,362 1.14 0.83
INVESTOR A CLASS
9/30/00 6.27% 3 $ 3,398 1.95% 1.08%
9/30/99 0.62 3 2,387 2.21 1.08
9/30/98 8.30 3 1,648 2.22 1.06
9/30/97 7.89 3 1,116 1.44 1.00
9/30/96 4.74 3 935 1.27 0.97
INVESTOR B CLASS
9/30/00 5.60%4 $ 1,071 2.66% 1.82%
9/30/99 (0.13)4 1,010 2.81 1.79
2/5/98 1 through 9/30/98 7.83 4 111 2.79 2 1.75 2
INVESTOR C CLASS
9/30/00 5.71%4 $ 475 2.71% 1.82%
10/16/98 1 through 9/30/99 (0.18)4 420 2.81 2 1.82 2
-------------------
CORE BOND PORTFOLIO
-------------------
BLACKROCK CLASS
9/30/00 7.45% $ 320,489 0.62% 0.40%
9/30/99 (0.02) 160,791 0.79 0.40
9/30/98 10.74 92,723 0.68 0.40
5/1/97 1 through 9/30/97 5.30 48,139 0.56 2 0.40 2
INSTITUTIONAL CLASS
9/30/00 7.29% $1,051,089 0.78% 0.55%
9/30/99 (0.17) 712,529 0.93 0.55
9/30/98 10.57 673,823 0.83 0.55
9/30/97 10.03 393,657 0.84 0.55
4/1/96 through 9/30/96 2.55 162,626 0.80 2 0.55 2
7/1/95 though 3/31/96 3.93 64,707 0.75 2 0.66 2
SERVICE CLASS
9/30/00 6.98% $ 59,334 1.11% 0.85%
9/30/99 (0.47) 65,758 1.23 0.86
9/30/98 10.24 70,111 1.18 0.85
9/30/97 9.71 122,308 1.35 0.85
4/1/96 through 9/30/96 2.40 117,207 1.08 2 0.85 2
1/12/96 1 through 3/31/96 (1.90) 232,040 0.94 2 0.85 2
INVESTOR A CLASS
9/30/00 5.89%3 $ 6,977 1.27% 1.02%
9/30/99 (0.64)3 6,776 1.41 1.03
9/30/98 10.04 3 5,108 1.27 0.98
9/30/97 9.52 3 2,441 1.36 1.01
4/1/96 through 9/30/96 2.36 3 320 1.27 2 1.02 2
1/31/96 1 through 3/31/96 (2.96)3 80 1.11 2 1.02 2
INVESTOR B CLASS
9/30/00 5.89%4 $ 12,189 2.04% 1.77%
9/30/99 (1.38)4 14,383 2.15 1.77
9/30/98 9.20 4 11,734 2.01 1.76
9/30/97 8.71 4 5,295 2.17 1.75
4/1/96 through 9/30/96 1.98 4 1,497 2.00 2 1.72 2
3/18/96 1 through 3/31/96 (0.33)4 77 1.86 2 1.77 2
</TABLE>
<TABLE>
<CAPTION>
Ratio of net
Ratio of expenses investment income
to average Ratio of net to average
net assets investment income net assets Portfolio
(excluding to average net (excluding turnover
waivers) assets waivers) rate
---------------------------------------------------------------------------------------------------------------------
---------------------------
INTERMEDIATE BOND PORTFOLIO
---------------------------
<S> <C> <C> <C> <C>
BLACKROCK CLASS
9/30/00 1.59% 6.58% 6.23% 199%
9/30/99 1.87 6.27 6.00 221
5/1/98 1 through 9/30/98 1.70 2 5.98 2 5.71 2 221
INSTITUTIONAL CLASS
9/30/00 1.65% 6.42% 6.20% 199%
9/30/99 1.96 6.12 5.90 221
9/30/98 1.99 6.05 5.78 221
9/30/97 1.27 6.18 5.89 321
9/30/96 1.13 5.97 5.67 670
SERVICE CLASS
9/30/00 1.96% 6.12% 5.90% 199%
9/30/99 2.26 5.81 5.60 221
9/30/98 2.33 5.78 5.51 221
9/30/97 1.56 5.88 5.59 321
9/30/96 1.44 5.67 5.36 670
INVESTOR A CLASS
9/30/00 2.16% 5.98% 5.76% 199%
9/30/99 2.43 5.70 5.49 221
9/30/98 2.49 5.64 5.37 221
9/30/97 1.73 5.70 5.41 321
9/30/96 1.57 5.53 5.23 670
INVESTOR B CLASS
9/30/00 2.87% 5.19% 4.97% 199%
9/30/99 3.02 4.89 4.68 221
2/5/98 1 through 9/30/98 3.06 2 4.50 2 4.23 2 221
INVESTOR C CLASS
9/30/00 2.92% 5.20% 4.98% 199%
10/16/98 1 through 9/30/99 3.02 2 4.99 2 4.77 2 221
-------------------
CORE BOND PORTFOLIO
-------------------
BLACKROCK CLASS
9/30/00 0.99% 6.68% 6.31% 248%
9/30/99 1.07 6.13 5.85 328
9/30/98 1.02 6.14 5.80 405
5/1/97 1 through 9/30/97 0.85 2 6.54 2 6.25 2 441
INSTITUTIONAL CLASS
9/30/00 1.02% 6.51% 6.27% 248%
9/30/99 1.19 5.94 5.68 328
9/30/98 1.17 6.00 5.66 405
9/30/97 1.14 6.52 6.23 441
4/1/96 through 9/30/96 1.09 2 6.50 2 6.20 2 308
7/1/95 though 3/31/96 1.00 2 5.80 2 5.55 2 723
SERVICE CLASS
9/30/00 1.35% 6.19% 5.95% 248%
9/30/99 1.48 5.63 5.37 328
9/30/98 1.52 5.72 5.38 405
9/30/97 1.64 6.09 5.81 441
4/1/96 through 9/30/96 1.37 2 6.10 2 5.81 2 308
1/12/96 1 through 3/31/96 1.19 2 5.37 2 5.12 2 723
INVESTOR A CLASS
9/30/00 1.51% 5.98% 5.74% 248%
9/30/99 1.66 5.48 5.23 328
9/30/98 1.61 5.49 5.15 405
9/30/97 1.65 5.96 5.67 441
4/1/96 through 9/30/96 1.56 2 6.04 2 5.75 2 308
1/31/96 1 through 3/31/96 1.36 2 5.34 2 5.10 2 723
INVESTOR B CLASS
9/30/00 2.28% 5.26% 5.02% 248%
9/30/99 2.41 4.72 4.47 328
9/30/98 2.35 4.78 4.44 405
9/30/97 2.46 5.19 4.90 441
4/1/96 through 9/30/96 2.29 2 5.40 2 5.11 2 308
3/18/96 1 through 3/31/96 2.11 2 4.62 2 4.37 2 723
</TABLE>
See accompanying notes to financial statements.
62 and 63
<PAGE>
BLACKROCK FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
For a Share Outstanding Throughout each Period
<TABLE>
<CAPTION>
Net Net gain Distributions
asset (loss) on Distributions in excess Distributions
value Net investments from net of net Distributions from net
beginning investment (both realized investment investment from realized
of period income and unrealized) income income capital gains
---------------------------------------------------------------------------------------------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTOR C CLASS
9/30/00 $ 9.31 $0.47 $ 0.05 $(0.47) $ -- $ -- $(0.01)
9/30/99 10.12 0.47 (0.61) (0.45) -- -- (0.22)
9/30/98 9.82 0.47 0.40 (0.48) -- -- (0.09)
2/28/97 1 through 9/30/97 9.64 0.29 0.17 (0.28) -- -- --
---------------------------
GOVERNMENT INCOME PORTFOLIO
---------------------------
INVESTOR A CLASS
9/30/00 $ 9.92 $0.56 $ 0.13 $(0.54) $ -- $(0.04) $ --
9/30/99 10.84 0.55 (0.70) (0.54) -- (0.07) (0.16)
9/30/98 10.49 0.53 0.54 (0.61) -- -- (0.11)
9/30/97 10.20 0.73 0.30 (0.74) -- -- --
9/30/96 10.68 0.68 (0.22) (0.66) -- -- (0.28)
INVESTOR B CLASS
9/30/00 $ 9.92 $0.49 $ 0.13 $(0.47) $ -- $(0.04) $ --
9/30/99 10.84 0.47 (0.70) (0.46) -- (0.07) (0.16)
9/30/98 10.49 0.54 0.50 (0.58) -- -- (0.11)
9/30/97 10.20 0.66 0.30 (0.67) -- -- --
9/30/96 10.68 0.60 (0.21) (0.59) -- -- (0.28)
INVESTOR C CLASS
9/30/00 $ 9.92 $0.49 $ 0.12 $(0.47) $ -- $(0.04) $ --
9/30/99 10.84 0.47 (0.70) (0.46) -- (0.07) (0.16)
9/30/98 10.49 0.51 0.53 (0.58) -- -- (0.11)
2/28/97 1 through 9/30/97 10.30 0.37 0.20 (0.38) -- -- --
--------------
GNMA PORTFOLIO
--------------
INSTITUTIONAL CLASS
9/30/00 $ 9.61 $0.62 $ 0.13 $(0.62) $(0.02) $ -- $(0.02)
9/30/99 10.11 0.61 (0.49) (0.60) -- -- (0.02)
5/18/98 1 through 9/30/98 10.00 0.23 0.10 (0.22) -- -- --
SERVICE CLASS
9/30/00 $ 9.61 $0.58 $ 0.16 $(0.59) $(0.02) $ -- $(0.02)
9/30/99 10.11 0.58 (0.49) (0.57) -- -- (0.02)
5/18/98 1 through 9/30/98 10.00 0.27 0.04 (0.20) -- -- --
INVESTOR A CLASS
9/30/00 $ 9.61 $0.56 $ 0.20 $(0.57) $(0.02) $ -- $(0.02)
9/30/99 10.11 0.56 (0.49) (0.55) -- -- (0.02)
5/18/98 1 through 9/30/98 10.00 0.20 0.11 (0.20) -- -- --
INVESTOR B CLASS
9/30/00 $ 9.61 $0.49 $ 0.15 $(0.50) $(0.02) $ -- $(0.02)
9/30/99 10.11 0.48 (0.49) (0.47) -- -- (0.02)
5/18/98 1 through 9/30/98 10.00 0.17 0.11 (0.17) -- -- --
INVESTOR C CLASS
9/30/00 $ 9.61 $0.50 $ 0.11 $(0.50) $(0.02) $ -- $(0.02)
9/30/99 10.11 0.48 (0.49) (0.47) -- -- (0.02)
5/18/98 1 through 9/30/98 10.00 0.23 0.05 (0.17) -- -- --
------------------------
MANAGED INCOME PORTFOLIO
------------------------
INSTITUTIONAL CLASS
9/30/00 $ 9.92 $0.62 $ 0.02 $(0.62) $ -- $ -- $(0.02)
9/30/99 10.64 0.62 (0.57) (0.62) -- -- (0.15)
9/30/98 10.41 0.67 0.26 (0.65) -- -- (0.05)
9/30/97 10.09 0.68 0.32 (0.68) -- -- --
9/30/96 10.38 0.64 (0.21) (0.62) -- -- (0.10)
SERVICE CLASS
9/30/00 $ 9.92 $0.60 $ 0.01 $(0.59) $ -- $ -- $(0.02)
9/30/99 10.64 0.59 (0.57) (0.59) -- -- (0.15)
9/30/98 10.41 0.60 0.30 (0.62) -- -- (0.05)
9/30/97 10.09 0.66 0.31 (0.65) -- -- --
9/30/96 10.38 0.61 (0.20) (0.60) -- -- (0.10)
INVESTOR A CLASS
9/30/00 $ 9.92 $0.59 $ 0.01 $(0.58) $ -- $ -- $(0.02)
9/30/99 10.64 0.58 (0.57) (0.58) -- -- (0.15)
9/30/98 10.41 0.59 0.29 (0.60) -- -- (0.05)
9/30/97 10.09 0.65 0.31 (0.64) -- -- --
9/30/96 10.38 0.59 (0.20) (0.58) -- -- (0.10)
Ratio of
Distributions Net Net expenses to
in excess asset assets Ratio of average net
of net value end of expenses to assets
realized end of Total period average net (excluding
gains period return (000) assets interest expense)
------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
INVESTOR C CLASS
9/30/00 $ -- $ 9.35 6.00%4 $ 2,911 2.07% 1.77%
9/30/99 -- 9.31 (1.38)4 6,762 2.16 1.76
9/30/98 -- 10.12 9.20 4 2,035 1.90 1.73
2/28/97 1 through 9/30/97 -- 9.82 4.82 4 128 1.93 2 1.74 2
---------------------------
GOVERNMENT INCOME PORTFOLIO
---------------------------
INVESTOR A CLASS
9/30/00 $ -- $10.03 7.27%3 $ 5,716 2.43% 1.06%
9/30/99 -- 9.92 (1.40)3 6,713 1.96 1.07
9/30/98 -- 10.84 11.13 3 6,045 1.46 1.05
9/30/97 -- 10.49 10.48 3 4,876 1.41 1.02
9/30/96 -- 10.20 4.43 3 3,651 2.96 0.91
INVESTOR B CLASS
9/30/00 $ -- $10.03 6.48%4 $ 24,608 3.25% 1.82%
9/30/99 -- 9.92 (2.14)4 34,753 2.72 1.81
9/30/98 -- 10.84 10.31 4 25,165 2.01 1.80
9/30/97 -- 10.49 9.66 4 14,796 2.14 1.77
9/30/96 -- 10.20 3.68 4 11,119 3.69 1.64
INVESTOR C CLASS
9/30/00 $ -- $10.02 6.38%4 $ 1,279 3.29% 1.82%
9/30/99 -- 9.92 (2.14)4 2,435 2.70 1.81
9/30/98 -- 10.84 10.31 4 1,551 2.14 1.80
2/28/97 1 through 9/30/97 -- 10.49 5.64 4 849 3.24 2 1.70 2
--------------
GNMA PORTFOLIO
--------------
INSTITUTIONAL CLASS
9/30/00 $ -- $ 9.70 7.58% $ 95,108 1.49% 0.60%
9/30/99 -- 9.61 1.14 110,611 0.86 0.60
5/18/98 1 through 9/30/98 -- 10.11 1.36 -- 0.63 2 0.60 2
SERVICE CLASS
9/30/00 $ -- $ 9.72 7.47% $ 197 1.78% 0.90%
9/30/99 -- 9.61 0.84% 97 1.31 0.88
5/18/98 1 through 9/30/98 -- 10.11 3.18 -- 0.74 2 0.57 2
INVESTOR A CLASS
9/30/00 $ -- $ 9.71 7.18%3 $ 1,882 1.98% 1.08%
9/30/99 -- 9.61 0.67 3 1,106 1.37 1.08
5/18/98 1 through 9/30/98 -- 10.11 3.12 3 535 1.10 2 1.06 2
INVESTOR B CLASS
9/30/00 $ -- $ 9.71 6.39%4 $ 335 2.71% 1.81%
9/30/99 -- 9.61 (0.09)4 229 2.08 1.81
5/18/98 1 through 9/30/98 -- 10.11 2.85 4 166 1.73 2 1.70 2
INVESTOR C CLASS
9/30/00 $ -- $ 9.68 6.39%4 $ 29 2.69% 1.81%
9/30/99 -- 9.61 (0.09)4 24 2.16 1.71
5/18/98 1 through 9/30/98 -- 10.11 2.85 4 -- 0.57 2 0.57 2
------------------------
MANAGED INCOME PORTFOLIO
------------------------
INSTITUTIONAL CLASS
9/30/00 $ -- $ 9.92 6.84% $1,158,375 1.30% 0.65%
9/30/99 -- 9.92 0.57 1,252,991 1.45 0.65
9/30/98 -- 10.64 9.25 1,335,054 1.30 0.63
9/30/97 -- 10.41 10.25 537,260 0.92 0.58
9/30/96 -- 10.09 4.33 564,744 0.58 0.58
SERVICE CLASS
9/30/00 $ -- $ 9.92 6.52% $ 284,075 1.59% 0.95%
9/30/99 -- 9.92 0.26 270,943 1.76 0.95
9/30/98 -- 10.64 8.93 257,641 1.69 0.93
9/30/97 -- 10.41 9.93 266,750 1.27 0.88
9/30/96 -- 10.09 4.05 165,073 0.88 0.88
INVESTOR A CLASS
9/30/00 $ -- $ 9.92 6.35% 3 $ 16,936 1.77% 1.12%
9/30/99 -- 9.92 0.09 3 15,092 1.93 1.12
9/30/98 -- 10.64 8.74 3 14,897 1.90 1.10
9/30/97 -- 10.41 9.74 3 15,230 1.41 1.05
9/30/96 -- 10.09 3.83 3 11,193 1.05 1.05
Ratio Ratio of net
expenses Ratio of net investment income
to average investment to average
net assets income net assets Portfolio
(excluding to average (excluding turnover
waivers) net assets waivers) rate
-------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
INVESTOR C CLASS
9/30/00 2.31% 5.20% 4.96% 248%
9/30/99 2.40 4.81 4.56 328
9/30/98 2.24 4.75 4.41 405
2/28/97 1 through 9/30/97 2.22 2 5.22 2 4.93 2 441
---------------------------
GOVERNMENT INCOME PORTFOLIO
---------------------------
INVESTOR A CLASS
9/30/00 2.77% 5.71% 5.37% 168%
9/30/99 2.32 5.30 4.94 195
9/30/98 2.04 5.45 4.87 477
9/30/97 2.13 7.63 6.91 393
9/30/96 3.72 6.54 5.78 434
INVESTOR B CLASS
9/30/00 3.60% 5.05% 4.71% 168%
9/30/99 3.08 4.55 4.19 195
9/30/98 2.59 4.82 4.24 477
9/30/97 2.86 6.89 6.17 393
9/30/96 4.45 5.76 5.00 434
INVESTOR C CLASS
9/30/00 3.64% 5.10% 4.76% 168%
9/30/99 3.06 4.52 4.16 195
9/30/98 2.72 4.64 4.06 477
2/28/97 1 through 9/30/97 3.96 2 5.57 2 4.85 2 393
--------------
GNMA PORTFOLIO
--------------
INSTITUTIONAL CLASS
9/30/00 1.84% 6.52% 6.16% 184%
9/30/99 1.21 6.15 5.81 124
5/18/98 1 through 9/30/98 1.00 2 6.09 2 5.72 2 56
SERVICE CLASS
9/30/00 2.15% 6.17% 5.81% 184%
9/30/99 1.64 6.12 5.79 124
5/18/98 1 through 9/30/98 1.11 2 8.78 2 8.41 2 56
INVESTOR A CLASS
9/30/00 2.33% 6.06% 5.70% 184%
9/30/99 1.69 5.76 5.44 124
5/18/98 1 through 9/30/98 1.47 2 5.65 2 5.28 2 56
INVESTOR B CLASS
9/30/00 3.06% 5.24% 4.89% 184%
9/30/99 2.43 4.94 4.59 124
5/18/98 1 through 9/30/98 2.10 2 4.50 2 4.13 2 56
INVESTOR C CLASS
9/30/00 3.04% 5.33% 4.98% 184%
9/30/99 2.50 5.15 4.81 124
5/18/98 1 through 9/30/98 0.94 2 5.26 2 4.90 2 56
------------------------
MANAGED INCOME PORTFOLIO
------------------------
INSTITUTIONAL CLASS
9/30/00 1.41% 6.44% 6.33% 205%
9/30/99 1.57 6.11 5.99 239
9/30/98 1.48 6.04 5.86 376
9/30/97 1.17 6.65 6.40 428
9/30/96 0.81 6.17 5.95 638
SERVICE CLASS
9/30/00 1.70% 6.15% 6.04% 205%
9/30/99 1.88 5.81 5.69 239
9/30/98 1.87 5.76 5.58 376
9/30/97 1.52 6.37 6.12 428
9/30/96 1.11 5.87 5.65 638
INVESTOR A CLASS
9/30/00 1.89% 6.03% 5.92% 205%
9/30/99 2.04 5.62 5.50 239
9/30/98 2.08 5.64 5.46 376
9/30/97 1.66 6.18 5.93 428
9/30/96 1.29 5.67 5.44 638
</TABLE>
See accompanying notes to financial statements.
64 and 65
<PAGE>
BLACKROCK FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
For a Share Outstanding Throughout each Period
<TABLE>
<CAPTION>
Net Net gain Distributions
asset (loss) on Distributions in excess
value Net investments from net of net
beginning investment (both realized investment investment
of period income and unrealized) income income
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTOR B CLASS
9/30/00 $ 9.92 $0.51 $ 0.02 $(0.51) $ --
9/30/99 10.64 0.50 (0.57) (0.50) --
9/30/98 10.41 0.52 0.29 (0.53) --
7/15/97 1 through 9/30/97 10.39 0.09 0.02 (0.09) --
INVESTOR C CLASS
11/22/99 6 through 9/30/00 $9.92 $0.44 $(0.02) $(0.43) $ --
5/19/99 1 through 9/30/99 10.14 0.08 (0.22) (0.08) --
----------------------------
INTERNATIONAL BOND PORTFOLIO
----------------------------
INSTITUTIONAL CLASS
9/30/00 $10.81 $0.49 $ 0.23 $(0.52) $ --
9/30/99 11.24 0.30 (0.09) (0.64) --
9/30/98 10.95 0.45 0.83 (0.57) --
9/30/97 11.71 0.78 0.42 (1.47) --
6/10/96 1 through 9/30/96 11.37 0.21 0.30 (0.17) --
SERVICE CLASS
9/30/00 $10.81 $0.46 $ 0.23 $(0.49) $ --
9/30/99 11.24 0.24 (0.06) (0.61) --
9/30/98 10.95 0.18 1.06 (0.53) --
9/30/97 11.71 1.36 (0.19) (1.44) --
2/1/96 through 9/30/96 11.39 0.89 (0.29) (0.28) --
3/1/95 through 1/31/96 10.52 0.62 1.13 (0.88) --
INVESTOR A CLASS
9/30/00 $10.81 $0.46 $ 0.21 $(0.47) $ --
9/30/99 11.24 0.23 (0.07) (0.59) --
9/30/98 10.95 0.47 0.76 (0.52) --
9/30/97 11.71 1.10 0.05 (1.42) --
4/22/96 1 through 9/30/96 11.37 0.26 0.32 (0.24) --
INVESTOR B CLASS
9/30/00 $10.81 $0.36 $ 0.23 $(0.39) $ --
9/30/99 11.24 0.13 (0.05) (0.51) --
9/30/98 10.95 0.40 0.74 (0.43) --
9/30/97 11.71 1.06 -- (1.33) --
4/19/96 1 through 9/30/96 11.36 0.22 0.33 (0.20) --
INVESTOR C CLASS
9/30/00 $10.81 $0.35 $ 0.24 $(0.39) $ --
9/30/99 11.24 0.13 (0.05) (0.51) --
9/30/98 10.95 0.54 0.60 (0.43) --
9/30/97 11.71 1.15 (0.09) (1.33) --
9/11/96 1 through 9/30/96 11.58 0.02 0.12 (0.01) --
-------------------------
HIGH YIELD BOND PORTFOLIO
-------------------------
BLACKROCK CLASS
9/30/00 $ 9.73 $1.14 $(0.82) $(1.13) $ --
11/19/98 1 through 9/30/99 10.00 0.90 (0.32) (0.85) --
INSTITUTIONAL CLASS
9/30/00 $ 9.73 $1.12 $(0.82) $(1.11) $ --
11/19/98 1 through 9/30/99 10.00 0.90 (0.31) (0.86) --
SERVICE CLASS
9/30/00 $ 9.73 $1.08 $(0.81) $(1.08) $ --
11/19/98 1 through 9/30/99 10.00 0.85 (0.31) (0.81) --
INVESTOR A CLASS
9/30/00 $ 9.73 $1.07 $(0.81) $(1.07) $ --
11/19/98 1 through 9/30/99 10.00 0.86 (0.31) (0.82) --
INVESTOR B CLASS
9/30/00 $ 9.73 $0.99 $(0.81) $(1.00) $ --
11/19/98 1 through 9/30/99 10.00 0.79 (0.31) (0.75) --
INVESTOR C CLASS
9/30/00 $ 9.73 $0.99 $(0.80) $(1.00) $ --
11/19/98 1 through 9/30/99 10.00 0.78 (0.31) (0.74) --
Distributions Net Net
Distributions in excess asset assets
from net of net value end of
realized realized end of Total period
gains gains period return (000)
------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
INVESTOR B CLASS
9/30/00 $(0.02) $ -- $ 9.92 5.56%4 $ 4,831
9/30/99 (0.15) -- 9.92 (0.66)4 5,818
9/30/98 (0.05) -- 10.64 7.94 4 4,639
7/15/97 1 through 9/30/97 -- -- 10.41 1.35 4 468
INVESTOR C CLASS
11/22/99 6 through 9/30/00 $ -- $ -- $ 9.91 4.91%4 $ 31
5/19/99 1 through 9/30/99 -- -- 9.92 -- --5
----------------------------
INTERNATIONAL BOND PORTFOLIO
----------------------------
INSTITUTIONAL CLASS
9/30/00 $(0.32) $ -- $10.69 7.04% $69,172
9/30/99 -- -- 10.81 1.91 59,265
9/30/98 (0.42) -- 11.24 12.51 43,672
9/30/97 (0.49) -- 10.95 11.59 43,310
6/10/96 1 through 9/30/96 -- -- 11.71 4.48 30,882
SERVICE CLASS
9/30/00 $(0.32) $ -- $10.69 6.72% $ 4,092
9/30/99 -- -- 10.81 1.60 3,730
9/30/98 (0.42) -- 11.24 12.17 2,359
9/30/97 (0.49) -- 10.95 11.23 6,708
2/1/96 through 9/30/96 -- -- 11.71 5.39 7,836
3/1/95 through 1/31/96 -- -- 11.39 16.79 37,627
INVESTOR A CLASS
9/30/00 $(0.32) $ -- $10.69 6.54%3 $ 5,435
9/30/99 -- -- 10.81 1.43 3 2,638
9/30/98 (0.42) -- 11.24 11.98 3 1,705
9/30/97 (0.49) -- 10.95 11.02 3 1,015
4/22/96 1 through 9/30/96 -- -- 11.71 5.13 3 176
INVESTOR B CLASS
9/30/00 $(0.32) $ -- $10.69 5.74%4 $ 3,283
9/30/99 -- -- 10.81 0.67 4 2,447
9/30/98 (0.42) -- 11.24 11.15 4 1,512
9/30/97 (0.49) -- 10.95 10.11 4 979
4/19/96 1 through 9/30/96 -- -- 11.71 4.90 4 136
INVESTOR C CLASS
9/30/00 $(0.32) $ -- $10.69 5.74%4 $ 2,228
9/30/99 -- -- 10.81 0.67 4 2,269
9/30/98 (0.42) -- 11.24 11.15 4 1,249
9/30/97 (0.49) -- 10.95 10.13 4 474
9/11/96 1 through 9/30/96 -- -- 11.71 1.24 4 19
-------------------------
HIGH YIELD BOND PORTFOLIO
-------------------------
BLACKROCK CLASS
9/30/00 $ -- $ -- $ 8.92 3.26% $ --
11/19/98 1 through 9/30/99 -- -- 9.73 5.87 --
INSTITUTIONAL CLASS
9/30/00 $ -- $ -- $ 8.92 3.11% $72,839
11/19/98 1 through 9/30/99 -- -- 9.73 5.93 63,860
SERVICE CLASS
9/30/00 $ -- $ -- $ 8.92 2.80% $ 43
11/19/98 1 through 9/30/99 -- -- 9.73 5.47 --
INVESTOR A CLASS
9/30/00 $ -- $ -- $ 8.92 2.63%3 $ 5,094
11/19/98 1 through 9/30/99 -- -- 9.73 5.50 3 4,412
INVESTOR B CLASS
9/30/00 $ -- $ -- $ 8.91 1.74%4 $39,897
11/19/98 1 through 9/30/99 -- -- 9.73 4.78 4 12,407
INVESTOR C CLASS
9/30/00 $ -- $ -- $ 8.92 1.86%4 $ 3,758
11/19/98 1 through 9/30/99 -- -- 9.73 4.69 4 2,647
Ratio of net
expenses to Ratio of expenses
Ratio of average net to average
expenses to assets net assets
average net (excluding (excluding
assets interest expense) waivers)
---------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
INVESTOR B CLASS
9/30/00 2.53% 1.87% 2.64%
9/30/99 2.68 1.87 2.80
9/30/98 2.43 1.82 2.61
7/15/97 1 through 9/30/97 2.14 2 1.31 2 2.39 2
INVESTOR C CLASS
11/22/99 6 through 9/30/00 2.36%2 1.78%2 2.47%2
5/19/99 1 through 9/30/99 2.53 2 1.79 2 2.64 2
----------------------------
INTERNATIONAL BOND PORTFOLIO
----------------------------
INSTITUTIONAL CLASS
9/30/00 1.38% 0.92% 1.38%
9/30/99 1.03 1.03 1.03
9/30/98 1.01 1.01 1.16
9/30/97 0.98 0.98 1.08
6/10/96 1 through 9/30/96 0.92 2 0.92 2 1.32 2
SERVICE CLASS
9/30/00 1.66% 1.22% 1.66%
9/30/99 1.33 1.33 1.33
9/30/98 1.31 1.31 1.46
9/30/97 1.30 1.29 1.40
2/1/96 through 9/30/96 1.09 2 1.09 2 1.20 2
3/1/95 through 1/31/96 1.23 2 1.23 2 1.23 2
INVESTOR A CLASS
9/30/00 1.89% 1.38% 1.89%
9/30/99 1.49 1.49 1.49
9/30/98 1.48 1.48 1.63
9/30/97 1.42 1.42 1.52
4/22/96 1 through 9/30/96 1.45 2 1.45 2 1.86 2
INVESTOR B CLASS
9/30/00 2.59% 2.13% 2.59%
9/30/99 2.24 2.24 2.24
9/30/98 2.22 2.22 2.37
9/30/97 2.12 2.12 2.22
4/19/96 1 through 9/30/96 2.09 2 2.09 2 2.49 2
INVESTOR C CLASS
9/30/00 2.56% 2.15% 2.56%
9/30/99 2.24 2.24 2.24
9/30/98 2.22 2.22 2.37
9/30/97 2.11 2.11 2.21
9/11/96 1 through 9/30/96 1.53 2 1.53 2 1.93 2
-------------------------
HIGH YIELD BOND PORTFOLIO
-------------------------
BLACKROCK CLASS
9/30/00 1.21% 0.55% 0.90%
11/19/98 1 through 9/30/99 0.33 2 0.28 2 0.41 2
INSTITUTIONAL CLASS
9/30/00 1.24% 0.70% 1.41%
11/19/98 1 through 9/30/99 1.02 2 0.71 2 1.67 2
SERVICE CLASS
9/30/00 1.60% 1.00% 1.63%
11/19/98 1 through 9/30/99 2.21 2 1.59 2 3.33 2
INVESTOR A CLASS
9/30/00 1.70% 1.17% 1.88%
11/19/98 1 through 9/30/99 1.54 2 1.15 2 2.21 2
INVESTOR B CLASS
9/30/00 2.47% 1.92% 2.57%
11/19/98 1 through 9/30/99 2.27 2 1.88 2 2.94 2
INVESTOR C CLASS
9/30/00 2.45% 1.92% 2.63%
11/19/98 1 through 9/30/99 2.25 2 1.88 2 2.92 2
Ratio of net
investment income
Ratio of net to average
investment income net assets Portfolio
to average net (excluding turnover
assets waivers) rate
-----------------------------------------------------------------------------------------------------
<C> <C> <C> <C>
INVESTOR B CLASS
9/30/00 5.23% 5.12% 205%
9/30/99 4.88 4.77 239
9/30/98 4.71 4.53 376
7/15/97 1 through 9/30/97 3.85 2 3.60 2 428
INVESTOR C CLASS
11/22/99 6 through 9/30/00 5.25%2 5.14%2 205%
5/19/99 1 through 9/30/99 4.93 2 4.82 2 239
----------------------------
INTERNATIONAL BOND PORTFOLIO
----------------------------
INSTITUTIONAL CLASS
9/30/00 4.69% 4.69% 266%
9/30/99 3.79 3.79 317
9/30/98 4.08 3.93 225
9/30/97 5.28 5.18 272
6/10/96 1 through 9/30/96 6.28 2 5.88 2 108
SERVICE CLASS
9/30/00 4.36% 4.36% 266%
9/30/99 3.50 3.50 317
9/30/98 3.79 3.64 225
9/30/97 5.01 4.91 272
2/1/96 through 9/30/96 3.82 2 3.72 2 108
3/1/95 through 1/31/96 5.62 2 5.62 2 159
INVESTOR A CLASS
9/30/00 4.20% 4.20% 266%
9/30/99 3.30 3.30 317
9/30/98 3.59 3.44 225
9/30/97 4.49 4.39 272
4/22/96 1 through 9/30/96 5.29 2 4.88 2 108
INVESTOR B CLASS
9/30/00 3.45% 3.45% 266%
9/30/99 2.56 2.56 317
9/30/98 2.83 2.68 225
9/30/97 3.65 3.55 272
4/19/96 1 through 9/30/96 4.61 2 4.21 2 108
INVESTOR C CLASS
9/30/00 3.43% 3.43% 266%
9/30/99 2.55 2.55 317
9/30/98 2.83 2.68 225
9/30/97 3.57 3.47 272
9/11/96 1 through 9/30/96 2.79 2 2.38 2 108
-------------------------
HIGH YIELD BOND PORTFOLIO
-------------------------
BLACKROCK CLASS
9/30/00 11.38% 11.11% 235%
11/19/98 1 through 9/30/99 10.45 2 10.38 2 185
INSTITUTIONAL CLASS
9/30/00 11.95% 11.78% 235%
11/19/98 1 through 9/30/99 10.49 2 9.85 2 185
SERVICE CLASS
9/30/00 12.13% 12.10% 235%
11/19/98 1 through 9/30/99 9.93 2 8.81 2 185
INVESTOR A CLASS
9/30/00 11.41% 11.23% 235%
11/19/98 1 through 9/30/99 10.17 2 9.49 2 185
INVESTOR B CLASS
9/30/00 10.84% 10.74% 235%
11/19/98 1 through 9/30/99 9.41 2 8.73 2 185
INVESTOR C CLASS
9/30/00 10.63% 10.45% 235%
11/19/98 1 through 9/30/99 9.36 2 8.69 2 185
<FN>
1 Commencement of operations of share class.
2 Annualized.
3 Sales load not reflected in total return.
4 Contingent deferred sales load not reflected in total return.
5 There were no Investor C shares outstanding as of September 30, 1999.
6 Reissuance of shares.
</FN>
</TABLE>
See accompanying notes to financial statements.
66 and 67
<PAGE>
BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS
BlackRock FundsSM ("the Fund") was organized on December 22, 1988, as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company. The Fund
currently has 39 publicly-offered portfolios, nine of which are included in
these financial statements (the "Portfolios"). Each Portfolio is authorized to
issue an unlimited number of shares with a par value of $0.001. Each portfolio
of the Fund may offer as many as seven classes of shares. Shares of all classes
of a Portfolio represent equal pro rata interests in such Portfolio, except that
each class bears different expenses which reflect the difference in the range of
services provided to them. The following table provides a list of the Portfolios
included in this report along with a summary of their respective class-specific
fee arrangements as provided under the Fund's Amended and Restated Distribution
and Service Plan (the "Plan"). Fees are expressed as a percentage of average
daily net asset values of the respective classes.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Portfolio Share Classes
------------------------------------------------------------------------------------------------------------------------------------
BlackRock Institutional Service
------------------------------------------------------------------------------------------------------------------------------------
Contractual Actual Contractual Actual Contractual Actual
Fees Fees(4) Fees Fees(4) Fees(1) Fees(4)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Low Duration Bond None None None None 0.30% 0.30%
------------------------------------------------------------------------------------------------------------------------------------
Intermediate Government
Bond N/A N/A None None 0.30% 0.30%
------------------------------------------------------------------------------------------------------------------------------------
Intermediate Bond None None None None 0.30% 0.30%
------------------------------------------------------------------------------------------------------------------------------------
Core Bond None None None None 0.30% 0.30%
------------------------------------------------------------------------------------------------------------------------------------
Government Income N/A N/A N/A N/A N/A N/A
------------------------------------------------------------------------------------------------------------------------------------
GNMA N/A N/A None None 0.30% 0.30%
------------------------------------------------------------------------------------------------------------------------------------
Managed Income N/A N/A None None 0.30% 0.30%
------------------------------------------------------------------------------------------------------------------------------------
International Bond N/A N/A None None 0.30% 0.30%
------------------------------------------------------------------------------------------------------------------------------------
High Yield Bond None None None None 0.30% 0.30%
------------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Portfolio Share Classes
-----------------------------------------------------------------------------------------------------------------------------
Investor A Investor B Investor C
-----------------------------------------------------------------------------------------------------------------------------
Contractual Actual Contractual Actual Contractual Actual
Fees(2) Fees(4) Fees(3) Fees(4) Fees(3) Fees(4)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Low Duration Bond 0.50% 0.40% 1.15% 1.15% 1.15% 1.15%
-----------------------------------------------------------------------------------------------------------------------------
Intermediate Government
Bond 0.50% 0.40% 1.15% 1.15% 1.15% 1.15%
-----------------------------------------------------------------------------------------------------------------------------
Intermediate Bond 0.50% 0.40% 1.15% 1.15% 1.15% 1.15%
-----------------------------------------------------------------------------------------------------------------------------
Core Bond 0.50% 0.40% 1.15% 1.15% 1.15% 1.15%
-----------------------------------------------------------------------------------------------------------------------------
Government Income 0.50% 0.40% 1.15% 1.15% 1.15% 1.15%
-----------------------------------------------------------------------------------------------------------------------------
GNMA 0.50% 0.40% 1.15% 1.15% 1.15% 1.15%
-----------------------------------------------------------------------------------------------------------------------------
Managed Income 0.50% 0.40% 1.15% 1.15% 1.15% 1.15%
-----------------------------------------------------------------------------------------------------------------------------
International Bond 0.50% 0.40% 1.15% 1.15% 1.15% 1.15%
-----------------------------------------------------------------------------------------------------------------------------
High Yield Bond 0.50% 0.40% 1.15% 1.15% 1.15% 1.15%
-----------------------------------------------------------------------------------------------------------------------------
<FN>
(1) -- the maximum annual contractual fees are comprised of a .15% service fee
and .15% shareholder processing fee.
(2) -- the maximum annual contractual fees are comprised of a .10% distribution
fee, .25% service fee and .15% shareholder processing fee.
(3) -- the maximum annual contractual fees are comprised of a .75% distribution
fee, .25% service fee and .15% shareholder processing fee.
(4) -- the actual fees are as of September 30, 2000.
</FN>
</TABLE>
In addition BlackRock shares bear a Transfer Agent fee at an annual rate
not to exceed .01%, Institutional and Service shares bear a Transfer Agent fee
at an annual rate not to exceed .03% and Investor A, Investor B and Investor C
shares bear a Transfer Agent fee at an annual rate not to exceed .10% of the
average daily net asset of such respective classes.
(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires the use of management estimates. Actual
results could differ from these estimates.
SECURITY VALUATION -- Portfolio securities for which market quotations are
readily available are valued at market value, which is currently determined
using the last reported sales price. Portfolio securities which are primarily
traded on foreign securities exchanges are normally valued at the preceding
closing values of such securities on their respective exchanges. If no sales are
reported, as in the case of some securities traded over-the-counter, portfolio
securities are valued at the mean between the last reported bid and asked prices
or on the basis of quotations provided by a pricing service or dealer which uses
information with respect to transactions on bonds, quotations from bond dealers,
market transactions in comparable securities and various relationships between
securities in determining value. Short-term obligations with maturities of 60
days or less are valued at amortized cost which approximates market value.
Discounts and premiums on debt securities are amortized for book and tax
purposes using the effective yield-to-maturity method over the term of the
instrument. Securities for which market quotations are not readily available are
carried at fair value as determined in accordance with procedures adopted by the
Fund's Board of Trustees. As of September 30, 2000, there were no securities
valued in accordance with such procedures.
68
<PAGE>
BLACKROCK FUNDS
DIVIDENDS TO SHAREHOLDERS -- Dividends from net investment income are
declared by each Portfolio each day on "settled" shares (i.e. shares for which
the particular Portfolio has received payment in federal funds) and are paid
monthly. Over the course of a year, substantially all of each Portfolio's net
investment income will be declared as dividends. The amount of the daily
dividend for each Portfolio will be based on periodic projections of its net
investment income. Net realized capital gains, if any, are distributed at least
annually. The character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes due to differences between
generally accepted accounting principles and tax accounting principles related
to the character of income and expense recognition.
FEDERAL TAXES -- No provision is made for federal taxes as it is the Fund's
intention to have each Portfolio continue to qualify for and elect the tax
treatment applicable to regulated investment companies under Subchapter M of the
Internal Revenue Code of 1986, as amended, and to make the requisite
distributions to its shareholders which will be sufficient to relieve it from
federal income and excise taxes.
Foreign Currency Translation -- The books and records of the Portfolios are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(I) market value of investment securities, assets and liabilities at the
current rate of exchange; and
(II) purchases and sales of investment securities, income and expenses at
the relevant rates of exchange prevailing on the respective dates
of such transactions.
The Portfolios isolate that portion of gains and losses on investment
securities which is due to changes in the foreign exchange rates from that which
is due to changes in market prices of such securities.
The Portfolios report certain foreign currency related transactions as
components of realized and unrealized gains for financial reporting purposes,
whereas such components are treated as ordinary income for federal income tax
purposes.
FORWARD FOREIGN CURRENCY CONTRACTS -- Certain Portfolios may enter into
forward foreign currency contracts as a hedge against either specific
transactions or Portfolio positions. These contracts are adjusted by the daily
exchange rate of the underlying currency and any gains or losses are recorded as
unrealized until the contract settlement date. Such contracts, which protect the
value of the Portfolio's investment securities against a decline in the value of
currency, do not eliminate fluctuations in the underlying prices of the
securities. They simply establish an exchange rate at a future date. Also,
although such contracts tend to minimize the risk of loss due to a decline in
the value of a hedged currency, at the same time they tend to limit any
potential gain that might be realized should the value of such foreign currency
increase. Risks may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts and from
unanticipated movements in the value of a foreign currency relative to the U.S.
dollar.
The aggregate principal amounts of the contracts are not recorded as the
Portfolios intend to settle the contracts prior to delivery. Under the terms of
foreign currency contracts open at September 30, 2000, the Portfolios are
obligated to deliver or receive currency in exchange for U.S. dollars as
indicated below:
<TABLE>
<CAPTION>
Unrealized
Value at Foreign
Settlement Currency Currency Contract September 30, Exchange
Date Amount Sold Amount 2000 Gain/(Loss)
--------- ----------- ------------------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Low Duration Bond
10/06/00 36,384,332 Danish Krone ............ $ 4,384,361 $ 4,313,086 $ 71,275
=========== =========== =========
International Bond Portfolio
10/06/00 46,212,500 Danish Krone ............ $ 5,462,470 $ 5,466,580 $ (4,110)
10/06/00 5,570,000 Great British Pound ..... 7,819,779 8,235,661 (415,882)
10/11/00 1,740,000 Canadian Dollar ......... 1,173,424 1,156,661 16,763
10/16/00 137,140,000 Swedish Krone ........... 14,133,627 14,250,222 (116,595)
11/27/00 9,000,000 European Currency Unit .. 7,692,210 7,963,425 (271,215)
11/27/00 168,000,000 Japanese Yen ............ 1,594,836 1,569,507 25,329
----------- ----------- ---------
$37,876,346 $38,642,056 $(765,710)
=========== =========== =========
</TABLE>
69
<PAGE>
BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Unrealized
Value at Foreign
Settlement Currency Currency Contract September 30, Exchange
Date Amount Bought Amount 2000 Gain/(Loss)
--------- ----------- ------------------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
International Bond Portfolio
10/06/00 2,245,000 New Zealand Dollar ...... $961,646 $912,570 $(49,076)
======== ======== ========
</TABLE>
SWAP AGREEMENTS -- The Portfolios may invest in swap agreements for the
purpose of hedging against changes in interest rates or foreign currencies. Swap
agreements involve the exchange by the Portfolios with another party of their
respective commitments to pay or receive interest, (e.g., an exchange of
floating rate payments for fixed rate payments) with respect to a notional
amount of principal. Swaps are marked to market daily based upon quotations from
market makers and the change, if any, is recorded as an unrealized gain or loss
in the Statements of Operations. Net payments of interest are recorded as
interest income. Entering into these agreements involves, to varying degrees,
elements of credit and market risk in excess of the amounts recognized on the
Statements of Assets and Liabilities. Such risks involve the possibility that
there will be no liquid market for these agreements, that the counterparty to
the agreement may default on its obligation to perform and that there may be
unfavorable changes in the fluctuation of interest and/or exchange rates.
At September 30, 2000, the following Portfolios had swap agreements
outstanding:
<TABLE>
<CAPTION>
UNREALIZED
PORTFOLIO COUNTER-PARTY TERMINATION DATE INTEREST INTEREST NOTIONAL AMOUNT APPRECIATION
RECEIVABLE RATE PAYABLE RATE (U.S. DOLLARS) (DEPRECIATION)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Low Duration Morgan Guaranty 07/07/2005 8.20% 6.50%* $ 1,414,200 $ 18,753
Bond Trust Co.
-----------------------------------------------------------------------------------------------------------------------------------
Intermediate Goldman Sachs 08/07/2010 6.71%+ 7.20% 3,500,000 (70,620)
Government Goldman Sachs 08/07/2002 7.05% 6.71%+ 13,500,000 77,998
Bond Goldman Sachs 10/03/2010 6.81%+ 6.89% 5,000,000 --
-----------------------------------------------------------------------------------------------------------------------------------
Intermediate Goldman Sachs 08/07/2010 6.71%+ 7.20% 6,500,000 (129,512)
Bond Goldman Sachs 08/07/2002 7.05% 6.71%+ 25,000,000 144,826
Goldman Sachs 10/03/2010 6.81%+ 6.89% 10,000,000 --
-----------------------------------------------------------------------------------------------------------------------------------
Core Bond Deutsche Bank 04/04/2005 7.25% 6.77%+ 50,000,000 959,715
Goldman Sachs 08/07/2010 6.71%+ 7.20% 18,000,000 (358,649)
Goldman Sachs 08/07/2002 7.05% 6.71%+ 69,000,000 399,721
Goldman Sachs 10/03/2010 6.81%+ 6.89% 19,000,000 --
Lehman Brothers 10/03/2010 6.81%+ 6.91% 23,000,000 --
Morgan Guaranty 07/07/2005 8.20% 6.50%* 7,136,996 85,297
Trust Co.
-----------------------------------------------------------------------------------------------------------------------------------
Government Goldman Sachs 08/07/2010 6.71%+ 7.20% 500,000 (9,874)
Income Goldman Sachs 08/07/2002 7.05% 6.71%+ 2,000,000 11,990
-----------------------------------------------------------------------------------------------------------------------------------
GNMA Goldman Sachs 08/07/2010 6.71%+ 7.20% 1,000,000 (20,178)
Goldman Sachs 08/07/2002 7.05% 6.71%+ 4,000,000 18,190
Goldman Sachs 10/03/2010 6.81%+ 6.89% 3,000,000 --
Lehman Brothers 06/16/2002 7.20%+ 6.79% 30,000,000 413,917
-----------------------------------------------------------------------------------------------------------------------------------
Managed Goldman Sachs 08/07/2010 6.71%+ 7.20% 17,500,000 (348,687)
Income Goldman Sachs 08/07/2002 7.05% 6.71%+ 67,000,000 388,775
Goldman Sachs 10/03/2010 6.81%+ 6.89% 19,000,000 --
Lehman Brothers 10/03/2010 6.81%+ 6.91% 23,000,000 --
Morgan Guaranty 07/07/2005 8.20% 6.50%* 7,947,804 94,988
Trust Co.
-----------------------------------------------------------------------------------------------------------------------------------
<FN>
*Interest amounts paid to counter-party based on notional amounts denominated in
European Currency Units of 1,500,000, 7,570,000 and 8,430,000 for the Low
Duration Bond, Core Bond and Managed Income Portfolios respectively.
+Rate shown is the floating rate as of September 30, 2000.
</FN>
</TABLE>
70
<PAGE>
BLACKROCK FUNDS
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
federal income tax purposes. Interest income is recorded on the accrual basis.
Expenses not directly attributable to a specific Portfolio or class are
allocated among all of the Portfolios or classes of the Fund based on their
relative net assets.
REPURCHASE AGREEMENTS -- Money market instruments may be purchased from
banks and non-bank dealers subject to the seller's agreement to repurchase them
at an agreed upon date and price. Collateral for repurchase agreements may have
longer maturities than the maximum permissible remaining maturity of portfolio
investments. The seller is required on a daily basis to maintain the value of
the securities subject to the agreement at not less than the repurchase price.
The agreements are conditioned upon the collateral being deposited under the
Federal Reserve book-entry system or held in a separate account by the Fund's
custodian or an authorized securities depository.
REVERSE REPURCHASE AGREEMENTS -- The Portfolios may enter into reverse
repurchase agreements with qualified, third party brokers-dealers as determined
by and under the direction of the Fund's Board of Trustees. Interest on the
value of the reverse repurchase agreements issued and outstanding is based upon
competitive market rates at the time of issuance. At the time the Portfolios
enter into a reverse repurchase agreement, it identifies for segregation certain
liquid securities having a value not less than the repurchase price, including
accrued interest, of the reverse repurchase agreement.
<TABLE>
<CAPTION>
Low Duration Intermediate Intermediate Government
Bond Government Bond Bond Income
Portfolio Portfolio Portfolio Portfolio
------------ --------------- -------------- -----------
<S> <C> <C> <C> <C>
Average daily balance of reverse repurchase
agreements outstanding during the year
ended September 30, 2000 ................ $ 84,227,239 $26,106,507 $ 91,234,000 $ 8,977,325
Weighted Average Interest Rate ............. 5.47% 6.10% 5.66% 5.84%
Maximum Amount of reverse repurchase
agreements outstanding at any month-end
during the year ended September 30, 20001 $104,184,739 $63,383,054 $169,395,389 $14,995,266
Percentage of total assets ................. 27.70% 14.63% 7.37% 27.09%
Amount of reverse repurchase agreements
outstanding at September 30, 2000 .......... $ 85,148,119 $57,313,078 $ 62,024,770 $ 3,819,462
Percentage of total assets ................. 24.88% 2.81% 7.37% 10.01%
Managed International High Yield
GNMA Income Bond Bond
Portfolio Portfolio Portfolio Portfolio
------------ ----------- ------------ -------------
Average daily balance of reverse repurchase
agreements outstanding during the year
ended September 30, 2000 ................ $15,340,746 $171,772,554 $ 8,929,076 $ 8,639,009
Weighted Average Interest Rate ............. 5.88% 4.76% 5.47% 6.20%
Maximum Amount of reverse repurchase
agreements outstanding at any month-end
during the year ended September 30, 2000 1 $20,370,998 $298,367,512 $29,027,331 $11,671,355
Percentage of total assets ................. 16.52% 16.00% 25.45% 8.41%
Amount of reverse repurchase agreements
outstanding at September 30, 2000 ....... $10,754,961 $208,160,103 $29,027,331 $11,671,355
Percentage of total assets ................. 9.60% 11.55% 25.45% 8.41%
<FN>
----------
1 The maximum amount of reverse repurchase agreements outstanding at any month
end occurred on January 31, 2000, June 30, 2000, November 30, 1999, January 31,
2000, January 31, 2000, October 31, 1999, September 30, 2000 and September 30,
2000, respectively.
</FN>
</TABLE>
FUTURES TRANSACTIONS -- The Portfolios may invest in financial futures
contracts solely for the purpose of hedging its existing portfolio securities,
or securities that the Portfolios intend to purchase, against fluctuations in
fair value caused by changes in prevailing market interest rates. Certain
Portfolios may enter into futures contracts subject to certain limitations. Upon
entering into a futures contract, the Portfolios are required to deposit cash or
pledge securities of an initial margin. Subsequent payments, which are dependent
on the daily fluctuations in the value of the underlying security or
71
<PAGE>
BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
securities, are made or received by the Portfolios each day (daily variation
margin) and are recorded as unrealized gains or losses until the contracts are
closed. When the contracts are closed, the Portfolios record a realized gain or
loss equal to the difference between the proceeds from (or cost of) the closing
transaction and the Portfolios' basis in the contracts. Risks of entering into
futures contracts include the possibility that there will not be a perfect price
correlation between the futures contracts and the underlying securities. Second,
it is possible that a lack of liquidity for futures contracts could exist in the
secondary market, resulting in an inability to close a futures position prior to
its maturity date. Third, the purchase of a futures contract involves the risk
that a Portfolio could lose more than the original margin deposit required to
initiate a futures transaction.
OPTION SELLING/PURCHASING -- The Portfolios may invest in financial options
contracts solely for the purpose of hedging its existing portfolio securities,
or securities that the Portfolios intend to purchase, against fluctuations in
fair value caused by changes in prevailing market interest rates. When the
Portfolios sell or purchase an option, an amount equal to the premium received
or paid by the Portfolios is recorded as a liability or an asset and is
subsequently adjusted to the current market value of the option written or
purchased. Premiums received or paid from writing or purchasing options which
expire unexercised are treated by the Portfolios on the expiration date as
realized gains or losses. The difference between the premium and the amount paid
or received on effecting a closing purchase or sale transaction, including
brokerage commissions, is also treated as a realized gain or loss. If an option
is exercised, the premium paid or received is added to the cost of the purchase
or proceeds from the sale in determining whether the Portfolios have realized a
gain or a loss on investment transactions. The Portfolios as writers of an
option, may have no control over whether the underlying securities may be sold
(call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written option.
Written Option transactions entered into during the fiscal year ended
September 30, 2000 are summarized as follows:
Low Duration
Bond
--------------------------
Number of
Contracts Premium
--------------------------
Balance at 9/30/99 ................ -- $ --
Written. .......................... 900 160,172
Expired ........................... (900) (160,172)
----- ---------
Balance at 9/30/00 -- $ --
===== =========
TBA PURCHASE COMMITMENTS -- The Portfolios may enter into "TBA" (to be
announced) purchase commitments to purchase securities for a fixed price at a
future date, typically not exceeding 45 days. TBA purchase commitments may be
considered securities in themselves, and involve a risk of loss if the value of
the security to be purchased declines prior to settlement date, which risk is in
addition to the risk of decline in the value of a Portfolio's other assets.
Unsettled TBA purchase commitments are valued at the current market value of the
underlying securities, according to the procedures described under "Security
Valuation" above.
MORTGAGE DOLLAR ROLLS -- The Portfolios may enter into mortgage dollar
rolls (principally using TBA's) in which the Portfolios sell mortgage securities
for delivery in the current month and simultaneously contract to repurchase
similar, but not identical, securities at an agreed-upon price on a fixed date.
The Portfolios account for such dollar rolls as purchases and sales and receive
compensation as consideration for entering into the commitment to repurchase. A
Portfolio must maintain liquid securities having a value not less than the
repurchase price (including accrued interest) for such dollar rolls. The market
value of the securities that a Portfolio is required to purchase may decline
below the agreed upon repurchase price of those securities.
In a "fee" roll, the compensation is recorded as deferred income and
amortized to income over the roll period. In a "drop" roll, the compensation is
paid via a lower price for the security upon its repurchase. The counterparty
receives all principal and interest payments, including prepayments, made in
respect of a security subject to such a contract while it is the holder.
Mortgage dollar rolls may be renewed with a new purchase and repurchase price
and a cash settlement made on settlement date without physical delivery of the
securities subject to the contract. A Portfolio engages in dollar rolls for the
purpose of enhancing its yield, principally by earning a negotiated fee.
72
<PAGE>
BLACKROCK FUNDS
SECURITIES LENDING -- Prior to the close of each business day, loans of
securities are secured by collateral at least equal to 102% of the market value
of the securities on loan. However, due to market fluctuations, the collateral
may fall under 102% of the market value of the securities on loan. On the next
business day the collateral is adjusted to meet the 102% requirement based on
the prior days market fluctuations and the current day's security lending
activity. However, in the event of default or bankruptcy by the other party to
the agreement, realization and/or retention of the collateral may be subject to
legal proceedings. The market value of securities on loan to brokers and the
value of collateral held by the Fund with respect to such loans (including
rights to draw on letters of credit) at September 30, 2000, is as follows:
<TABLE>
<CAPTION>
Value of Income
Market Value of Collateral Earned on
Portfolio Securities On Loan Received Securities Loaned*
--------- ------------------ ---------- ----------------
<S> <C> <C> <C>
Intermediate Government
Bond Portfolio ............... $ 48,338,332 $ 49,906,738 $ 13,127
Intermediate Bond Portfolio .... 7,169,573 7,385,386 19,007
Core Bond Portfolio ............ 157,979,798 168,400,375 167,804
Government Income .............. 863,363 896,700 4,824
GNMA Portfolio ................. 594,628 619,544 598
Managed Income Portfolio ....... 36,437,165 37,654,320 94,795
High Yield Bond Portfolio ...... 9,516,260 9,999,638 51,775
<FN>
*Income is included in interest income on the Statement of Operations.
</FN>
</TABLE>
OTHER -- Securities denominated in currencies other than U.S. dollars are
subject to changes in value due to fluctuations in exchange rates.
Some countries in which the Portfolios invest require governmental approval
for the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if there is a deterioration in a
country's balance of payments or for other reasons, a country may impose
temporary restrictions on foreign capital remittances abroad.
The securities exchanges of certain foreign markets are substantially
smaller, less liquid and more volatile than the major securities markets in the
United States. Consequently, acquisition and disposition of securities by the
Portfolios may be inhibited.
(B) TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to an Investment Advisory Agreement, BlackRock Advisors, Inc.
("BlackRock"), a wholly-owned subsidiary of BlackRock, Inc., serves as
investment adviser to the Portfolios. BlackRock Financial Management, Inc.,
("BFM") a wholly-owned subsidiary of BlackRock, serves as sub-adviser for all of
the Portfolios. BlackRock, Inc. is an indirect majority-owned subsidiary of The
PNC Financial Services Group, Inc.
For its advisory services, BlackRock is entitled to receive fees, computed
daily and paid monthly, at the following annual rates, based on each Portfolio's
average daily net assets:
<TABLE>
<CAPTION>
Each Portfolio
Except the International International Bond Portfolio
Bond Portfolio & GNMA Portfolio & GNMA Portfolio
------------------------------- ----------------------------
Investment Investment
Average Daily Net Assets Advisory Fee Advisory Fee
------------------------------ ------------------------------- ----------------------------
<S> <C> <C>
first $1 billion ............. .500% .550%
$1 billion-- $2 billion ...... .450 .500
$2 billion-- $3 billion ...... .425 .475
greater than $3 billion ...... .400 .450
</TABLE>
73
<PAGE>
BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the year ended September 30, 2000, advisory fees and waivers for each
Portfolio were as follows:
<TABLE>
<CAPTION>
Gross Net Advisory
Advisory Fee Waiver Fee
-------------- ---------- ------------
<S> <C> <C> <C>
Low Duration Bond Portfolio .......... $1,368,281 $ 759,386 $ 608,895
Intermediate Government Bond Portfolio 1,950,681 829,349 1,121,332
Intermediate Bond Portfolio .......... 3,260,340 1,395,707 1,864,633
Core Bond Portfolio .................. 5,908,849 2,899,310 3,009,539
Government Income Portfolio .......... 181,931 126,791 55,140
GNMA Portfolio ....................... 563,212 362,060 201,152
Managed Income Portfolio ............. 7,465,106 1,743,474 5,721,632
International Bond Portfolio ......... 430,460 -- 430,460
High Yield Bond Portfolio ............ 522,298 127,262 395,036
</TABLE>
BlackRock pays BFM fees for its sub-advisory services.
PFPC, Inc. ("PFPC"), an indirect wholly-owned subsidiary of The PNC
Financial Services Group, Inc., and BlackRock act as co-administrators for the
Fund. For these services, the co-administrators receive a combined
administration fee computed daily and payable monthly, based on a percentage of
the average daily net assets of each Portfolio, at the following annual rates:
.085% of the first $500 million, .075% of the next $500 million and .065% of
assets in excess of $1 billion. In addition, each of the classes, except for the
BlackRock Class, are charged an administration fee based on the following
percentage of average daily net assets of each respective class: .145% of the
first $500 million, .135% of the next $500 million and .125% of assets in excess
of $1 billion. The BlackRock Class is charged an administration fee of .035% of
the first $500 million, .025% of the next $500 million and .015% of assets in
excess of $1 billion based upon average daily net assets of its class.
For the year ended September 30, 2000, administration fees and waivers for
each Portfolio were as follows:
<TABLE>
<CAPTION>
Gross Net
Administration Administration
Fee Waiver Fee
-------------- ---------- --------------
<S> <C> <C> <C>
Low Duration Bond Portfolio ..... $ 629,409 $ 132,433 $ 496,976
Intermediate Government Bond
Portfolio ..................... 897,313 -- 897,313
Intermediate Bond Portfolio ..... 1,469,343 157,145 1,312,198
Core Bond Portfolio ............. 2,583,520 291,347 2,292,173
Government Income Portfolio ..... 83,688 -- 83,688
GNMA Portfolio .................. 235,525 -- 235,525
Managed Income Portfolio ........ 3,240,823 -- 3,240,823
International Bond Portfolio .... 180,011 -- 180,011
High Yield Bond Portfolio ....... 240,257 33,403 206,854
</TABLE>
Prior to February 1, 1999, BlackRock may have, at its discretion, waived
all or any portion of its advisory fees for any Portfolio. In addition, PFPC and
BlackRock and BlackRock Distributors, Inc. ("BDI"), as the Fund's distributor,
may have, at their discretion, voluntarily waived all or any portion of their
administration fees for any Portfolio.
In the interest of limiting the expenses of the Portfolios, BlackRock and
the Fund have entered into an expense limitation agreement effective February 1,
1999. The agreement sets a limit on certain of the operating expenses of each
Portfolio for the next year and requires BlackRock to waive or reimburse fees or
expenses if these operating expenses exceed that limit. These expense limits
apply to expenses charged on Portfolio assets as a whole, but not expenses
separately charged to the different share classes of a Portfolio.
If in the following two years the operating expenses of a Portfolio that
previously received a waiver or reimbursement from BlackRock are less than the
expense limit for that Portfolio, the Portfolio is required to repay BlackRock
up to the amount of fees waived or expenses reimbursed under the agreement if:
(1) the Portfolio has more than $50 million in assets, (2) BlackRock continues
to be the Portfolio's investment adviser and (3) the Board of Trustees of the
Fund has approved the payments to BlackRock on a quarterly basis.
74
<PAGE>
BLACKROCK FUNDS
The expense limits as a percentage of average daily net assets and amounts
subject to possible reimbursement under the expense limitation agreement were as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Low Duration Bond Portfolio .......... .385% $1,265,802
Intermediate Government Bond Portfolio .475% 1,424,003
Intermediate Bond Portfolio .......... .435% 2,122,778
Core Bond Portfolio .................. .380% 4,414,982
Government Income Portfolio .......... .550% 231,260
GNMA Portfolio ....................... .485% 575,889
Managed Income Portfolio ............. .485% 2,931,321
International Bond Portfolio ......... .865% --
High Yield Bond Portfolio ............ .525% 458,816
</TABLE>
PFPC Trust Co. serves as custodian for each of the Fund's Portfolios. PFPC
serves as transfer and dividend disbursing agent.
Under the Fund's Amended and Restated Distribution and Service Plan (the
"Plan"), Investor Shares of the Portfolios bear the expense payments
("distribution fees") made to BDI, or affiliates of PNC Bank, for distribution
and sales support services. Under the Plan, the Fund has entered into
arrangements with various Service Organizations (including PNC Bank and its
affiliates) that provide support services to their customers who are the
beneficial owners of shares in each Investor Class and the Service Class. Refer
to the fee table in the "Notes to Financial Statements" for fee information.
(C) PURCHASES AND SALES OF SECURITIES
For the year ended September 30, 2000, purchases and sales of securities,
other than short-term and government securities, were as follows:
<TABLE>
<CAPTION>
Purchases Sales
-------------- --------------
<S> <C> <C>
Low Duration Bond Portfolio .......... $ 182,524,554 $ 77,093,572
Intermediate Government Bond Portfolio 159,813,803 162,364,171
Intermediate Bond Portfolio .......... 606,822,338 322,117,248
Core Bond Portfolio .................. 1,688,376,116 1,159,927,640
Government Income Portfolio .......... 24,714,796 29,329,062
GNMA Portfolio ....................... 79,346,984 81,176,546
Managed Income Portfolio ............. 1,606,201,380 1,668,336,006
International Bond Portfolio ......... 257,303,753 187,408,713
High Yield Bond Portfolio ............ 303,427,377 257,351,078
</TABLE>
For the year ended September 30, 2000, purchases and sales of government
securities were as follows:
<TABLE>
<CAPTION>
Purchases Sales
-------------- --------------
<S> <C> <C>
Low Duration Bond Portfolio .......... $ 496,759,609 $ 461,643,470
Intermediate Government Bond Portfolio 474,996,527 362,365,811
Intermediate Bond Portfolio .......... 1,159,932,354 1,083,258,449
Core Bond Portfolio .................. 1,801,821,795 1,687,656,553
Government Income Portfolio .......... 52,668,372 71,831,640
GNMA Portfolio ....................... 134,705,569 145,350,001
Managed Income Portfolio ............. 1,955,090,996 1,836,355,253
International Bond Portfolio ......... 4,994,531 15,113,818
High Yield Bond Portfolio ............ 779,143 --
</TABLE>
75
<PAGE>
BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(D) CAPITAL SHARES
Transactions in capital shares for each period were as follows:
<TABLE>
<CAPTION>
Low Duration Bond Portfolio
-----------------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/00 9/30/99
--------------------------------- --------------------------------
Shares Value Shares Value
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
BlackRock Class ...................... 11,296,341 $ 109,833,622 832,804 $ 8,225,913
Institutional Class .................. 2,827,539 27,551,164 5,049,746 50,160,391
Service Class ........................ 1,154,085 11,241,155 481,738 4,773,870
Investor A Class ..................... 670,509 6,535,316 7,997,051 79,368,911
Investor B Class ..................... 622,191 6,064,036 849,840 8,398,923
Investor C Class ..................... 190,946 1,857,649 295,280 2,913,761
Shares issued in reinvestment of dividends:
BlackRock Class ...................... 345,579 3,364,894 437,739 4,345,898
Institutional Class .................. 65,383 637,415 77,974 773,054
Service Class ........................ 35,159 342,667 32,267 319,928
Investor A Class ..................... 8,599 83,763 6,974 69,156
Investor B Class ..................... 11,058 107,707 1,678 16,527
Investor C Class ..................... 814 7,943 230 2,256
Shares redeemed:
BlackRock Class ...................... (10,870,493) (105,788,472) (7,196,600) (71,522,179)
Institutional Class .................. (6,026,762) (58,708,155) (5,717,416) (56,567,681)
Service Class ........................ (897,192) (8,733,655) (629,119) (6,237,880)
Investor A Class ..................... (687,507) (6,704,569) (8,023,994) (79,648,051)
Investor B Class ..................... (572,858) (5,584,337) (122,395) (1,210,268)
Investor C Class ..................... (269,569) (2,626,365) (169,657) (1,673,985)
---------- ------------- ---------- ------------
Net decrease .............................. (2,096,178) $ (20,518,222) (5,795,860) $(57,491,456)
========== ============= ========== ============
</TABLE>
<TABLE>
<CAPTION>
Intermediate Government Bond Portfolio
-----------------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/00 9/30/99
--------------------------------- --------------------------------
Shares Value Shares Value
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class .................. 3,909,787 $ 38,214,512 3,507,375 $ 35,391,770
Service Class ........................ 1,342,324 13,162,765 827,540 8,427,966
Investor A Class ..................... 21,105,345 206,352,053 23,464,426 235,348,637
Investor B Class ..................... 190,353 1,866,295 81,567 823,939
Investor C Class ..................... 91,605 902,886 33,550 335,611
Shares issued in reinvestment of dividends:
Institutional Class .................. 74,183 729,528 290,113 2,975,693
Service Class ........................ 3,729 36,794 20,453 209,851
Investor A Class ..................... 27,659 270,688 33,385 339,213
Investor B Class ..................... 1,676 16,381 744 7,498
Investor C Class ..................... 259 2,534 1 11
Shares redeemed:
Institutional Class .................. (10,443,450) (102,055,162) (6,636,676) (67,012,012)
Service Class ........................ (1,487,458) (14,521,148) (984,744) (9,969,516)
Investor A Class ..................... (20,930,487) (204,611,773) (23,526,911) (235,853,068)
Investor B Class ..................... (132,732) (1,299,501) (35,011) (353,173)
Investor C Class ..................... (78,830) (775,432) (14,731) (147,933)
----------- ------------- ----------- -------------
Net decrease .............................. (6,326,037) $ (61,708,580) (2,938,919) $ (29,475,513)
=========== ============= =========== =============
</TABLE>
76
<PAGE>
BLACKROCK FUNDS
<TABLE>
<CAPTION>
Intermediate Bond Portfolio
-----------------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/00 9/30/99
--------------------------------- --------------------------------
Shares Value Shares Value
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
BlackRock Class ...................... 11,859,406 $107,041,799 1,378,815 $ 12,608,853
Institutional Class .................. 21,760,521 195,266,438 10,315,220 96,225,816
Service Class ........................ 1,184,365 10,632,772 1,242,448 11,610,084
Investor A Class ..................... 537,049 4,841,793 370,766 3,469,555
Investor B Class ..................... 42,234 379,337 109,782 1,027,624
Investor C Class ..................... 41,504 376,223 74,567 685,199
Shares issued in reinvestment of dividends:
BlackRock Class ...................... 315,214 2,829,408 134,838 1,259,759
Institutional Class .................. 75,759 681,349 533,001 5,011,399
Service Class ........................ 50,310 478,840 62,444 584,579
Investor A Class ..................... 13,853 124,410 9,745 91,018
Investor B Class ..................... 4,277 38,428 2,299 21,264
Investor C Class ..................... 262 2,353 112 1,043
Shares redeemed:
BlackRock Class ...................... (122,606) (1,095,720) (1,865,426) (17,440,794)
Institutional Class .................. (17,546,902) (157,750,069) (9,255,425) (86,356,153)
Service Class ........................ (1,140,714) (10,241,853) (1,317,770) (12,268,337)
Investor A Class ..................... (440,535) (3,956,567) (288,703) (2,680,316)
Investor B Class ..................... (40,084) (360,413) (12,658) (116,792)
Investor C Class ..................... (35,906) (322,186) (28,545) (261,301)
----------- ------------ --------- ------------
Net increase .............................. 16,558,007 $148,966,342 1,465,510 $ 13,472,500
=========== ============ ========= ============
</TABLE>
<TABLE>
<CAPTION>
Core Bond Portfolio
-----------------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/00 9/30/99
--------------------------------- --------------------------------
Shares Value Shares Value
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
BlackRock Class ...................... 21,087,787 $ 194,073,654 12,304,751 $ 117,815,392
Institutional Class .................. 54,311,518 495,924,240 22,622,724 217,677,987
Service Class ........................ 3,243,295 29,959,049 3,059,912 29,525,974
Investor A Class ..................... 1,315,214 12,219,392 449,024 4,340,261
Investor B Class ..................... 419,132 3,860,889 670,156 6,468,706
Investor C Class ..................... 340,083 3,108,152 732,575 7,100,978
Shares issued in reinvestment of dividends:
BlackRock Class ...................... 1,090,262 10,030,782 686,453 6,616,617
Institutional Class .................. 511,164 4,711,914 1,547,546 15,039,732
Service Class ........................ 37,042 341,741 176,475 1,716,378
Investor A Class ..................... 36,158 332,562 38,763 373,736
Investor B Class ..................... 43,498 400,065 58,104 561,236
Investor C Class ..................... 5,986 55,024 6,424 60,884
Shares redeemed:
BlackRock Class ...................... (5,189,436) (47,853,092) (4,888,053) (46,820,534)
Institutional Class .................. (18,998,689) (175,297,810) (14,235,545) (136,184,476)
Service Class ........................ (4,000,164) (36,844,356) (3,102,768) (29,354,941)
Investor A Class ..................... (1,333,629) (12,388,057) (264,885) (2,547,956)
Investor B Class ..................... (704,414) (6,467,813) (343,118) (3,277,734)
Investor C Class ..................... (761,120) (6,991,375) (213,866) (2,037,003)
----------- ------------ ---------- ------------
Net increase .............................. 51,453,687 $469,174,961 19,304,672 $187,075,237
=========== ============ ========== ============
</TABLE>
77
<PAGE>
BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Government Income Portfolio
-----------------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/00 9/30/99
--------------------------------- --------------------------------
Shares Value Shares Value
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Investor A Class ..................... 881,467 $ 8,660,329 260,226 $ 2,715,739
Investor B Class ..................... 316,977 3,107,686 1,949,007 20,327,259
Investor C Class ..................... 32,915 320,513 285,429 3,023,210
Shares issued in reinvestment of dividends:
Investor A Class ..................... 21,345 208,767 30,494 315,789
Investor B Class ..................... 90,198 882,206 116,786 1,207,289
Investor C Class ..................... 3,093 30,255 5,135 53,075
Shares redeemed:
Investor A Class ..................... (1,009,572) (9,908,818) (171,587) (1,749,782)
Investor B Class ..................... (1,455,997) (14,171,917) (883,791) (9,009,692)
Investor C Class ..................... (153,802) (1,499,977) (188,143) (1,955,238)
---------- ------------ --------- -----------
Net increase (decrease) ................... (1,273,376) $(12,370,956) 1,403,556 $14,927,649
========== ============ ========= ===========
</TABLE>
<TABLE>
<CAPTION>
GNMA Portfolio
-----------------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/00 9/30/99
--------------------------------- --------------------------------
Shares Value Shares Value
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class .................. 1,810,767 $ 17,240,718 1,140,847 $ 11,252,768
Service Class ........................ 108,059 1,017,579 10,000 100,000
Investor A Class ..................... 209,042 1,994,012 163,262 1,623,804
Investor B Class ..................... 25,489 242,481 15,005 149,441
Investor C Class ..................... 4,117 39,089 2,509 24,987
Shares issued in reinvestment of dividends:
Institutional Class .................. 19,874 191,544 20,941 210,041
Service Class ........................ 1 8 1 7
Investor A Class ..................... 3,837 36,489 953 9,420
Investor B Class ..................... 1,306 12,432 837 8,294
Investor C Class ..................... 10 91 1 5
Shares redeemed:
Institutional Class .................. (3,476,540) (33,079,959) (1,390,033) (13,772,698)
Service Class ........................ (97,761) (920,124) -- --
Investor A Class ..................... (133,467) (1,264,537) (102,641) (1,006,748)
Investor B Class ..................... (15,965) (152,414) (8,598) (85,468)
Investor C Class ..................... (3,611) (34,292) (61) (632)
---------- ------------ ---------- ------------
Net decrease .............................. (1,544,842) $(14,676,883) (146,977) $ (1,486,779)
========== ============ ========== ============
</TABLE>
78
<PAGE>
BLACKROCK FUNDS
<TABLE>
<CAPTION>
Managed Income Portfolio
-----------------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/00 9/30/99
--------------------------------- --------------------------------
Shares Value Shares Value
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class .................. 46,152,102 $ 446,950,514 19,369,006 $ 198,295,963
Service Class ........................ 36,473,691 353,591,999 23,985,008 246,124,482
Investor A Class ..................... 921,541 8,976,202 1,652,130 17,049,147
Investor B Class ..................... 77,426 754,652 241,920 2,480,512
Investor C Class ..................... 11,103 108,965 89,834 911,388
Shares issued in reinvestment of dividends:
Institutional Class .................. 314,630 3,107,878 1,741,803 17,972,961
Service Class ........................ 568,795 5,556,541 800,827 8,224,822
Investor A Class ..................... 72,523 708,040 84,338 865,048
Investor B Class ..................... 22,522 219,890 25,489 261,167
Investor C Class ..................... -- -- 112 1,120
Shares redeemed:
Institutional Class .................. (56,001,653) (543,081,920) (20,180,012) (206,556,608)
Service Class ........................ (35,718,972) (346,362,494) (21,667,679) (221,936,261)
Investor A Class ..................... (808,957) (7,883,201) (1,614,057) (16,588,344)
Investor B Class ..................... (199,432) (1,941,119) (116,526) (1,183,067)
Investor C Class ..................... (8,012) (77,947) (89,946) (909,267)
----------- ------------- ----------- -------------
Net increase (decrease) ................... (8,122,693) $ (79,372,000) 4,322,247 $ 45,013,063
=========== ============= =========== =============
</TABLE>
<TABLE>
<CAPTION>
International Bond Portfolio
-----------------------------------------------------------------------------
For the Year Ended For the Year Ended
9/30/00 9/30/99
--------------------------------- --------------------------------
Shares Value Shares Value
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
Institutional Class .................. 1,833,642 $19,307,309 2,263,708 $25,360,758
Service Class ........................ 187,091 1,971,475 273,669 3,040,289
Investor A Class ..................... 359,280 3,803,221 110,247 1,215,695
Investor B Class ..................... 136,761 1,446,660 120,051 1,333,373
Investor C Class ..................... 67,834 722,011 146,359 1,627,582
Shares issued in reinvestment of dividends:
Institutional Class .................. 77,609 830,322 23,195 257,254
Service Class ........................ 8,015 85,104 4,843 53,860
Investor A Class ..................... 18,613 196,768 8,011 89,058
Investor B Class ..................... 10,735 113,421 4,349 48,278
Investor C Class ..................... 8,608 91,004 3,763 41,792
Shares redeemed:
Institutional Class .................. (925,109) (9,805,617) (688,344) (7,645,996)
Service Class ........................ (157,556) (1,654,082) (143,232) (1,588,480)
Investor A Class ..................... (113,875) (1,199,308) (25,793) (287,680)
Investor B Class ..................... (66,814) (703,611) (32,536) (356,783)
Investor C Class ..................... (78,041) (821,214) (51,322) (569,217)
--------- ----------- --------- -----------
Net increase .............................. 1,366,793 $14,383,463 2,016,968 $22,619,783
========= =========== ========= ===========
</TABLE>
79
<PAGE>
BLACKROCK FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
High Yield Bond Portfolio
-----------------------------------------------------------------------------
For the Year Ended For the Period
9/30/00 11/19/98 1 thru 9/30/99
--------------------------------- --------------------------------
Shares Value Shares Value
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold:
BlackRock Class ...................... -- $ -- 11 $ 100
Institutional Class .................. 3,032,666 28,831,220 6,762,768 68,071,217
Service Class ........................ 4,802 45,000 11 100
Investor A Class ..................... 289,966 2,723,013 479,652 4,861,542
Investor B Class ..................... 1,549,318 14,666,198 1,695,082 17,092,840
Investor C Class ..................... 493,464 4,727,253 285,616 2,901,857
Shares issued in acquisition:
Investor B Class ..................... 3,138,933 29,192,143 -- --
Shares issued in reinvestment of dividends:
BlackRock Class ...................... 1 11 -- 7
Institutional Class .................. 615 5,782 88 880
Service Class ........................ 1 11 -- 7
Investor A Class ..................... 15,040 142,436 6,305 63,254
Investor B Class ..................... 88,750 831,652 15,397 154,087
Investor C Class ..................... 16,745 159,836 2,815 28,278
Shares redeemed:
BlackRock Class ...................... -- -- -- --
Institutional Class .................. (1,425,769) (13,494,689) (201,248) (2,030,800)
Service Class ........................ -- (5) -- --
Investor A Class ..................... (186,991) (1,773,455) (32,638) (329,155)
Investor B Class ..................... (1,575,491) (14,692,503) (435,698) (4,353,940)
Investor C Class ..................... (360,703) (3,394,168) (16,479) (163,867)
---------- ------------ --------- -----------
Net increase .............................. 5,081,347 $ 47,969,735 8,561,682 $86,296,407
========== ============ ========= ===========
-------------
<FN>
--------------
1 Commencement of operations.
</FN>
</TABLE>
(E) AT SEPTEMBER 30, 2000, NET ASSETS CONSISTED OF:
<TABLE>
<CAPTION>
Low Intermediate
Duration Government Intermediate Core
Bond Bond Bond Bond
Portfolio Portfolio Portfolio Portfolio
------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
Capital paid-in .......................... $248,998,331 $375,665,588 $711,960,784 $1,476,050,211
Undistributed net investment income ...... 344,576 -- 1,002,609 --
Distributions in excess of net
investment income ...................... -- (122,169) -- (1,909,654)
Accumulated net realized loss on
investment transactions, futures,
options, swap contracts and foreign
exchange contracts ..................... (3,870,946) (9,165,847) (11,459,213) (18,642,225)
Net unrealized depreciation on investment
transactions, futures contracts, swap
contracts and foreign exchange contracts (579,917) (4,284,387) (2,366,847) (2,508,877)
------------ ------------ ------------ --------------
$244,892,044 $362,093,185 $699,137,333 $1,452,989,455
============ ============ ============ ==============
</TABLE>
80
<PAGE>
BLACKROCK FUNDS
<TABLE>
<CAPTION>
Government Managed International High Yield
Income GNMA Income Bond Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
----------- ----------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Capital paid-in ..................... $33,486,412 $97,859,976 $1,523,182,336 $83,091,528 $135,896,355
Undistributed net investment income . -- -- -- 6,755,036 568,397
Distributions in excess of net
investment income ................. (132,896) (117,664) (3,393,097) -- --
Accumulated net realized loss on
investment transactions, futures,
options, swap contracts and foreign
exchange contracts ................ (1,431,378) (253,519) (34,299,889) (1,274,497) (2,547,035)
Net unrealized appreciation
(depreciation) on investment
transactions, futures contracts,
swap contracts and foreign
exchange contracts ................ (319,078) 63,004 (21,241,829) (4,362,405) (12,286,341)
----------- ----------- -------------- ----------- ------------
$31,603,060 $97,551,797 $1,464,247,521 $84,209,662 $121,631,376
=========== =========== ============== =========== ============
</TABLE>
(F) CAPITAL LOSS CARRYOVERS
At September 30, 2000, capital loss carryovers were available to offset
possible future realized capital gains as follows:
<TABLE>
<CAPTION>
Capital Loss Carryforward Year of Expiration
------------------------- ------------------
<S> <C> <C>
Low Duration Bond Portfolio: $ 154,306 2002
767,646 2003
470,894 2004
230,754 2008
Intermediate Government Bond Portfolio: 5,634,692 2008
Intermediate Bond Portfolio: 6,230,483 2008
Core Bond Portfolio: 13,773,053 2008
Government Income Portfolio: 861,594 2008
GNMA Portfolio: 195,028 2008
Managed Income Portfolio: 8,409,204 2008
International Bond Portfolio: 147,469 2008
High Yield Bond Portfolio: 683,582 2007
603,164 2008
</TABLE>
On September 30, 2000, deferred post-October losses for the Low Duration
Bond Portfolio were $2,167,913, for the Intermediate Government Bond Portfolio
were $3,519,070, for the Intermediate Bond Portfolio were $4,779,071, for the
Core Bond Portfolio were $4,389,323, for the Government Income Portfolio were
$496,368, for the GNMA Portfolio were $60,586, for the Managed Income Portfolio
were $24,472,066, for the International Bond Portfolio were $1,307,231 and for
the High Yield Bond Portfolio were $1,037,488.
(G) REORGANIZATION
On October 4, 1999, October 12, 1999 and May 5, 2000, the Board of Trustees
of the Fund, the Board of Directors of Independence Square Income Securities,
Inc. ("ISIS") and the Shareholders of ISIS, respectively, approved an asset
purchase agreement between the Fund and ISIS. The agreement provided for the
acquisition by the BlackRock High Yield Portfolio of all of the assets and
liabilities of ISIS in a tax-free exchange for Investor B shares of the
Portfolio and the distribution of such Investor B shares to the participating
shareholders of ISIS in the liquidation of ISIS. On May 18, 2000, shares in the
amount of 3,138,933 were issued, net assets of $29,192,143 were converted, the
net asset value per share issued was $9.30 and unrealized appreciation of assets
acquired as of the conversion date was $1,417,192.
81
<PAGE>
BLACKROCK FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF BLACKROCK FUNDS:
In our opinion, the accompanying statements of net assets of the Low Duration
Bond, Government Income and GNMA Portfolios and the statements of assets and
liabilities, including the schedules of investments, of the Intermediate
Government Bond, Intermediate Bond, Core Bond, Managed Income, International
Bond and High Yield Bond Portfolios (constituting the taxable bond portfolios of
BlackRock Funds, hereafter referred to as the "Fund") and the related statements
of operations and of changes in net assets, of cash flows of the Low Duration
Bond, Intermediate Bond, Government Income and GNMA Portfolios and the financial
highlights present fairly, in all material respects, the financial position of
the Low Duration Bond, Intermediate Government Bond, Intermediate Bond, Core
Bond, Government Income, GNMA, Managed Income, International Bond and High Yield
Bond Portfolios of the Fund at September 30, 2000, the results of each of their
operations for the year then ended and the changes in each of their net assets,
the cash flows of the Low Duration Bond, Intermediate Bond, Government Income
and GNMA Portfolios and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 2000 by
correspondence with the custodians and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
November 17, 2000
82
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
BLACKROCK FUNDS
Investment Adviser
BlackRock Advisors,Inc.
New York, New York 10154
Sub-Adviser
BlackRock Financial Management,Inc.
New York, New York 10154
Custodian
PFPC Trust Co.
Philadelphia,Pennsylvania 19103
Co-Administrator and Transfer Agent
PFPCInc.
Wilmington,Delaware 19809
Distributor
BlackRock Distributors, Inc.
King of Prussia, Pennsylvania 19406
Co-Administrator
BlackRock Advisors, Inc.
New York, New York 10154
Counsel
Simpson, Thacher & Bartlett
New York, New York 10017
(A partnership which includes professional
corporations)
Independent Accountants
PricewaterhouseCoopers LLP
Philadelphia,Pennsylvania 19103
To reduce expenses, the Fund will mail only one copy of annual and semi-annual
reports and most prospectuses to your household, even if more than one person in
the household has a Fund account. Please call (800) 441-7762 if you would like
to receive additional reports or prospectuses.
<PAGE>
BLACKROCK FUNDS
FUND SPECTRUM
BlackRock Funds is a leading mutual fund company currently managing in excess of
$25 billion in 39 portfolios designed to fit a broad range of investment goals.
Each portfolio is managed by recognized experts in equity, fixed income,
international, and tax-free investing who adhere to a PURE INVESTMENT STYLE.(R)
Stock Portfolios
----------------
Large Cap Value Equity
Large Cap Growth Equity
Mid-Cap Value Equity
Mid-Cap Growth Equity
Small Cap Value Equity
Small Cap Growth Equity
Micro-Cap Equity
Global Science & Technology
European Equity
International Equity
International Small Cap Equity
Asia Pacific Equity
International Emerging Markets
Select Equity
Index Equity
Stock & Bond Portfolios
-----------------------
Balanced
Bond Portfolios
---------------
Low Duration Bond
Intermediate Government Bond
Intermediate Bond
Core Bond
Government Income
GNMA
Managed Income
International Bond
HighYield Bond
Tax-Free Bond Portfolios
------------------------
Tax-Free Income
Pennsylvania Tax-Free Income
New Jersey Tax-Free Income
Ohio Tax-Free Income
Delaware Tax-Free Income
Kentucky Tax-Free Income
Money Market Portfolios
-----------------------
Money Market
U.S. Treasury Money Market
Municipal Money Market
New Jersey Municipal Money Market
North Carolina Municipal Money Market
Ohio Municipal Money Market
Pennsylvania Municipal Money Market
Virginia Municipal Money Market
SHAREHOLDER PRIVILEGES
24 HOUR ACCOUNT INFORMATION
Call us at 1-800-441-7762, 24 hours a day, 7 days a week to get information
about your account balances, recent transactions and share prices. Note:
Institutional and Service Share Class investors should call 1-800-441-7764. You
can also reach us on the Internet through the World Wide Web by accessing
http://www.blackrock.com.
EXCHANGE PRIVILEGES
Should your investment goals change, shareholders in our Investor Class shares
may exchange all or part of their investments into the same share class of any
other portfolio of BlackRock Funds. (1)
AUTOMATIC INVESTMENT PLANS
Investor Class shareholders who want to invest regularly can arrange to have $50
or more automatically deducted from their checking or savings account and
invested in any of the BlackRock portfolios.
SYSTEMATIC WITHDRAWAL PLANS
Investor Class shareholders can establish a systematic withdrawal plan and
receive periodic payments of $100 or more from their BlackRock portfolios, as
long as their account is at least $1,000.
RETIREMENT PLANS
Shareholders may make investments in conjunction with individual IRAaccounts or
rollover IRAs.
GENERAL INFORMATION ABOUT THE BLACKROCK FUNDS
If you would like additional reports or have questions regarding any of the 39
BlackRock Funds, please call 1-800-FUTURE4 (1-800-388-8734)
(1) BLACKROCK FUNDS RESERVES THE RIGHT TO MODIFY OR TERMINATE THE EXCHANGE
PRIVILEGES AT ANY TIME.
<PAGE>
[GRAPHICS OMITTED]
BLACKROCK FUNDS
P.O. Box 8907
Wilmington, DE 19899
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by PNC Bank, National Association or any other bank and shares are not federally
insured by, guaranteed by, obligations of or otherwise supported by the U.S.
Government, the Federal Deposit Insurance Corporation, The Federal Reserve
Board, or any other governmental agency. Investments in shares of the fund
involve investment risks, including the possible loss of the principal amount
invested.
AR 9/30/00 TP
